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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
Annual Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the fiscal year ended December 31, 1995
COMMISSION FILE NUMBER: 0-26368
[LOGO]
COMPUTRON SOFTWARE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 13-2966911
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
301 ROUTE 17 NORTH RUTHERFORD, NEW JERSEY 07070
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code) 201-935-3400
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Name of each exchange
Title of each class on which registered
- ------------------- -------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, $.01 par value
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. (X)
The aggregate market value of the voting stock held by non-affiliates of the
Registrant, based upon the closing sale price of Common Stock on March 27, 1996
as reported on the Nasdaq National Market, was approximately $46.1 million.
Shares of Common Stock held by each officer and director and by each person who
owns 5% or more of the outstanding Common Stock have been excluded in that such
persons may be deemed to be affiliates. This determination of affiliate status
is not necessarily a conclusive determination for other purposes.
As of March 27, 1996, Registrant had outstanding 20,770,999 shares of Common
Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Items 10, 11, 12 and 13 of Part III are incorporated by reference from a portion
of the Registrant's definitive proxy statement to be furnished to stockholders
in connection with the 1996 Annual Meeting of Stockholders.
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EXPLANATORY NOTE
This 10-K/A is being filed to amend the report on Form 10-K for the period ended
December 31, 1995 (the "Original Report") and to report the restatement of
certain financial information included in the Original Report.
The Company has restated its consolidated financial statements for each of the
four years ended December 31, 1995, for certain unaudited quarters in such
periods and for each of the three unaudited quarters ended September 30, 1996.
See Note 2 to the accompanying Consolidated Financial Statements. The Company
believes that all material adjustments necessary to correct the Company's
previously reported financial statements have been recorded.
The restatements reflect revenue reversals and deferrals of sales previously
recognized in the periods from the fourth quarter of 1992 through the third
quarter of 1996. These revenue adjustments resulted in reductions of previously
recorded bad debt provisions and increases in deferred revenue. Also included in
the restated consolidated financial statements are certain operating expenses
not previously recorded by the Company and the recording of certain expenses in
different accounting periods.
The net impact of these adjustments on the Company's revenues and net income
(loss) for each of the five years ended December 31, 1996, is as follows:
<TABLE>
<CAPTION>
Increase (Decrease)
-------------------
Revenues Net Income (Loss)
-------- -----------------
<S> <C> <C>
1992...................... (868) (868)
1993...................... (694) (694)
1994...................... (2,485) (2,485)
1995...................... (2,724) (1,266)
1996...................... (1,126) 264
</TABLE>
This 10-K/A includes only the changes necessary to reflect the restatement of
the financial statements included in the Original Report and the matters
addressed in Notes 2 and 5 of the Consolidated Financial Statements, and does
not address any other developments subsequent to the date of the Original
Report. For a discussion of other developments subsequent to the date of the
Original Report, including, but not limited to, pending litigation against the
Company, changes in management, recommendations of the Company's independent
public accountants regarding financial and accounting procedures and controls,
and delisting of the Company's common stock from the Nasdaq National Market, see
the Registrant's most recent reports and documents filed with the Securities and
Exchange Commission.
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PART I
ITEM 1. BUSINESS
This Report contains statements of a forward-looking nature relating to future
events or the future financial performance of the Company. Investors are
cautioned that such statements are only predictions and that actual events or
results may differ materially. In evaluating such statements, investors should
specifically consider the various factors identified in this Report which could
cause actual results to differ materially from those indicated by such
forward-looking statements, including the matters set forth in "Business -- Risk
Factors."
GENERAL
The Company designs, develops, markets and supports client/server financial,
workflow and archival data management software solutions. The Company's
financial software ("Computron Financials") consists of a full suite of modules
with multi-currency and multi-language support capabilities, including general
ledger, financial reporting, accounts payable, accounts receivable, fixed
assets, purchase order and materials management, and inventory control. The
Company's workflow management software ("Computron Workflow") enables
organizations to automate and optimize labor intensive processes (such as
customer service, accounts payable/receivable processing and claims processing).
The Company's Computer Output On-Line software ("Computron COOL") provides
on-line access, retrieval and warehousing of archival enterprise data typically
stored off-line, as well as document image management. Computron Workflow and
Computron COOL can be used in conjunction with Computron Financials or as
stand-alone applications.
PRODUCTS
The Company designs, develops, markets and supports client/server financial,
workflow and archival data management software solutions. The Company's
interrelated product families include (i) Computron Financials -- a full suite
of financial and accounting modules, (ii) Computron Workflow--workflow,
productivity, process management and reengineering support software and (iii)
Computron COOL--on-line access, retrieval and warehousing software for archival
data typically stored off-line.
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COMPUTRON FINANCIALS
Computron Financials consists of a series of modules that are listed below:
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MODULE FEATURES
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COMPUTRON GENERAL LEDGER The Computron General Ledger module enables
the collection and reporting of accounting
information and permits multi-dimensional
chart of account structures, multiple
reporting period processing, parallel
posting, user-defined management reporting
and unlimited reporting levels.
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COMPUTRON FINANCIAL REPORTING The Computron Financial Reporting module
consolidates and reports enterprise data on
a user-defined basis (by organization,
product, cost, revenue, demographics and
other bases) and provides executive
information functions.
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COMPUTRON ACCOUNTS PAYABLE The Computron Accounts Payable module
manages payments made to vendors and other
third parties, enables automation of
accounts payable processing and permits
user-definition, on-line vendor review,
voucher preparation, receiving payment and
advance payment handling and multiple
invoice approval methods.
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COMPUTRON ACCOUNTS RECEIVABLE The Computron Accounts Receivable module
enables users to optimize the management of
accounts receivable and provides
customizable and split payment terms,
customer profiles, recurring item processing
and deposit and prepayment management.
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COMPUTRON PURCHASE ORDER AND The Computron Purchase Order and Materials
MATERIALS MANAGEMENT Management module enables automated purchase
order processing, user-defined vendor
evaluation and allows for blanket and
standard orders, on-line printing of
purchase orders, critical delivery flagging,
"contract near limit" warnings and
early/late and over/under shipment reports.
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COMPUTRON INVENTORY CONTROL The Computron Inventory Control module
handles inventory control functions,
including automatic pick tickets, automatic
reorder, automatic cycle count and
substitute item capabilities.
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COMPUTRON FIXED ASSETS The Computron Fixed Assets module tracks
fixed assets, maintains related financial
and accounting records and provides for
flexible, unlimited depreciation calendars,
user-defined asset identification and make,
model and number descriptions.
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MODULE FEATURES
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COMPUTRON TIME AND EXPENSE ACCOUNTING The Computron Time and Expense
Accounting module handles tracking
and accounting for time-based billing
and expenses through the use of
user-defined codes, with multi-level
time and expense tracking,
customizable billing memos, flexible
billing rate options and automated
integration with accounts payable and
accounts receivable processing.
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COMPUTRON ENCUMBRANCE ACCOUNTING The Computron Encumbrance Accounting
module enables public sector and
non-for-profit accounting by
enforcing strict controls over
disbursements and purchasing
commitments to ensure that they do
not exceed budgeted amounts.
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COMPUTRON APPLICATION DEVELOPMENT TOOLSET The Computron Application Development
Toolset module provides a
graphical-based toolset enabling
users to change application data
models, presentation, rules, and
logic/connectivity to other
applications, and manages
customization of menu, user
preferences, security and other
processing related characteristics.
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Computron Financials incorporates numerous international features, including
multi-currency and multi-national support capabilities and the ability to
support the numeric, data and address formats of various countries, accounting
standards and tax calculations, such as value-added taxation of various
countries.
COMPUTRON WORKFLOW
Computron Workflow automates various labor intensive functions throughout large
organizations (such as customer service, accounts payable processing, accounts
receivable processing and claims processing). Computron Workflow can be used as
a stand-alone application or in conjunction with Computron Financials or
third-party applications. Computron Workflow is designed to improve the
productivity and efficiency of business processes within large organizations
that handle substantial quantities of transactions and activities on a
proceduralized basis. Computron Workflow enables users to develop systems which
automate their document processing and procedure, including on-line routing of
documents or transactions and customized sequencing of processing tasks
throughout an organization. Computron Workflow can be used in a wide variety of
applications in the process-based, transactional or labor intensive areas within
an organization, including (i) industry-independent functions, such as accounts
receivable and accounts payable processing, customer service, legal compliance
and order processing and (ii) industry-specific functions, such as claims
processing, membership or new account creation, loan origination and servicing
and brokerage account processing.
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The following table briefly describes the individual modules of Computron
Workflow:
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MODULE FEATURES
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COMPUTRON WORKFLOW The Computron workflow module enables
on-line, real-time management review and
optimization of business processes, allows
for the fine-tuning and adjustment of
process handling and the audit and
supervision of productivity, and handles
standard business and industry-specific
processes.
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COMPUTRON REPORT & QUERY The Computron Report & Query module allows
sophisticated report writing, multiple data
file integration, on-line review and data
extraction in connection with Computron
Workflow.
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COMPUTRON RECORDS MANAGEMENT The Computron Records Management module
provides batch or individual document
scanning and storage and is able to handle
document input from a variety of formats and
sources, including fax transmissions and
optical character recognition-based systems,
and handles user-defined query and retrieval
functions.
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COMPUTRON COOL
Computron COOL software enhances access to data available throughout an
enterprise by complementing on-line data with information that is typically
stored off-line in the report output of various computing systems or stored on
microfiche or on paper. Computron COOL accesses data that is found in reports
produced by the various computer systems found in an enterprise, regardless of
whether the reports were produced by a mainframe, legacy, personal computer, or
client/server computer system and regardless of the application that generated
the reports. Computron COOL can function as a substitute for computer output to
microfiche, an on-line report viewer, a facility for downloading information
from paper reports into spreadsheets and other applications, a data warehousing
support tool, as well as a tool kit for "relating" information extracted from
disparate data sources.
Computron COOL software accesses data in report format from the user's existing
systems, and then indexes, compresses, and saves the data on magnetic storage or
optical disks. Computron COOL software then enables users throughout an
enterprise to retrieve the data simultaneously, to search the data on-line, as
well as download the data to spreadsheets or word processing documents, and to
print, fax, or otherwise distribute all or parts of the data on an easy-to-use
basis. Computron COOL can function on a stand-alone basis and can be integrated
with Computron Financials and Computron Workflow, as well as with the customers'
own and third party applications.
SERVICES
As of December 31, 1995, the Company had 159 employees providing customer
support and technical, consulting and training services. The Company's services
are described below.
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CUSTOMER SUPPORT
Support for the domestic U.S. clients is based out of the Company's corporate
headquarters in Rutherford, New Jersey, with hotline access between the hours of
8:00 a.m. and 9:00 p.m. Eastern time. Major client support centers are also
based in Hong Kong, London, Melbourne and Sydney. Annual maintenance contracts
are generally required for the first year of a customer's use of the Company's
products, and are renewable on an annual basis. The maintenance contract also
entitles the customer to any product enhancements released during the term of
the contract. Maintenance fees are typically equal to 15% of the products under
license.
The Company also provides product information bulletins on an ongoing basis and
periodic informational updates about the products installed. These bulletins
generally answer commonly asked questions and provide information about new
product features. The Company also provides services for the development of
customized documentation about the customer's system to reflect, among other
things user-defined modifications and specific business logic and processes.
TECHNICAL SERVICES
The Company offers assistance in customizing the Company's software or
developing interfaces with third party software or legacy systems. These
services are designed to enable the development of additional client-specific
functionality. The Company also provides network troubleshooting and assists its
customers in deploying client/server systems, RDBMS software, operating systems
and telecommunications programs. Such services are generally not directly
related to the implementation of the Company's products but relate to effective
enterprise-wide solutions.
CONSULTING SERVICES
The Company's consulting services organization provides project assurance,
business systems review, technical design, functional design, business modeling,
system building, system tailoring, system certification, change management and
ongoing project support. The Company also frequently works with third party
consultants and system integrators to provide customers with a full range of
installation, customization and project management services.
EDUCATION SERVICES
The Company's education services group is responsible for the development and
delivery of training courses designed to familiarize users with Computron's
products. A standard schedule of courses is delivered at Computron's
headquarters with additional courses delivered at other domestic and
international locations on a periodic basis. A course catalog and schedule are
provided to the Company's customers. In addition to regularly scheduled
classroom training, Computron's education services group works with each
customer to develop tailored training courses for delivery at their site. The
group also provides standard courses at the customer's location. Training
courses vary in length from one to five days.
SALES AND MARKETING
The Company currently markets its products and services primarily through a
direct sales force in the United States and directly and indirectly in other
parts of the world. The Company conducts comprehensive marketing programs in the
United States which include telemarketing, public relations,
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direct mail, advertising, seminars, trade shows and ongoing customer
communications programs. As of December 31, 1995, the Company's sales and
marketing organization consisted of 123 employees.
The Company's marketing efforts in the United States are conducted by a direct
sales force which is located at the Company's headquarters in Rutherford, New
Jersey, and in the Atlanta, Boston, Chicago, Los Angeles, San Francisco and
Washington, D.C., metropolitan areas. The Company's U.S. marketing efforts are
supported by independent distributors and systems integrators. In addition, the
Company has established strategic alliances with hardware and software vendors.
Outside of the United States, the Company maintains sales and support offices in
Australia, Hong Kong, Indonesia, Poland, Singapore, Toronto and the United
Kingdom. The Company has also established distribution arrangements with third
parties in Australia, Indonesia, Malaysia, the Netherlands and South Africa.
STRATEGIC ALLIANCES
The Company has established strategic alliances and relationships with a number
of organizations that it believes are important to the development, sales,
marketing and support of its products. The Company's relationships with software
and hardware vendors, systems integrators and consulting firms, many of which
are not the subject of formal written agreements, provide marketing and sales
leads to the Company's direct sales force and expand the distribution of its
products. The Company's strategic alliances and relationships also assist the
Company in keeping pace with the technological developments of major software
and hardware vendors. The Company intends to continue to develop its strategic
alliances with leading hardware and software vendors, consulting firms, systems
integrators and distributors in the future.
SYSTEMS INTEGRATORS AND CONSULTANTS
The Company has established non-exclusive, formal and informal relationships
with systems integrators and consultants who are active in the selection and
implementation of information systems, including Andersen Consulting, Cap Gemini
America, Price Waterhouse and Systems House Limited. In addition, the Company
has established relationships with independent distributors. By providing
technical, consulting and integration services for the Company's products, these
companies expand the ability of the Company to service and implement its
products.
HARDWARE VENDORS
The Company has developed relationships with major hardware vendors such as
Digital Equipment Corporation, Hewlett-Packard, IBM and Sun Microsystems. These
hardware vendors provide sales leads, technical support and, in some cases, have
funded the cost of porting the Company's products to their hardware.
SOFTWARE VENDORS
The Company has established relationships with third party software vendors
including Computer Associates, Informix, Microsoft, Oracle and Sybase. These
vendors provide sales leads, assist the Company in developing the capability of
the Company's products to interoperate with third party software and assist the
Company in incorporating new technologies.
PRODUCT DEVELOPMENT
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The Company has a dedicated product development and engineering organization and
has periodically released new products and enhancements to existing products.
Product development efforts are directed at increasing product functionality,
improving product performance and expanding the capabilities of the products to
interoperate with third party software and hardware. In particular, the Company
is devoting substantial development resources to develop additional modules for
its products and the capability to support additional platforms, databases,
GUIs, toolsets and emerging technologies. While the Company anticipates that
certain new products and enhancements will be developed internally, the Company
may acquire or license technology or software from third parties when
appropriate.
There can be no assurance that the Company will be successful in developing and
marketing product enhancements or new products that respond to technological
change, changes in customer requirements, or emerging industry standards, that
the Company will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of such products and
enhancements, or that any new products or enhancements that it may introduce
will achieve market acceptance. The inability of the Company, for technological
or other reasons, to develop and introduce new products or enhancements in a
timely manner in response to changing customer requirements, technological
change or emerging industry standards, would have a material adverse effect on
the Company's business, results of operations and financial condition. See
"Business -- Risk Factors -- New Products and Rapid Technological Change: Risk
of Product Defects, Development Delays and Lack of Market Acceptance."
As of December 31, 1995, the Company had 99 employees engaged in product
development and engineering.
COMPETITION
The financial applications and business software market is intensely competitive
and rapidly changing. A number of companies offer products similar to the
Company's products and target the same customers as the Company. The Company
believes its ability to compete depends upon many factors within and outside its
control, including the timing and market acceptance of new products and
enhancements developed by the Company and its competitors, product
functionality, performance, price, reliability, customer service and support,
sales and marketing efforts and product distribution. The primary competition
for Computron Financials are the financial applications software offered by
Oracle Corporation, PeopleSoft, Inc. and SAP AG. The principal competitors for
the Company's Computron Workflow and Computron COOL software are Wang
Laboratories, Inc. ("Wang") and FileNet Corporation. The Company has entered
into an agreement with Wang pursuant to which Wang has the right to license
Computron COOL software to third parties under its own private label and modify
such software. In exchange, Wang paid a non-refundable source code and fully
paid-up license fee to the Company. The Company anticipates that Wang's
COOL-based product may become a significant competitor to Computron COOL. Most
of the Company's competitors are substantially larger than the Company and have
significantly greater financial, technical and marketing resources, and
extensive direct and indirect channels of distribution. As a result, they may be
able to respond more quickly to new or emerging technologies and changes in
customer requirements, or to devote greater resources to the development,
promotion and sale of their products than the Company. The Company's products
also compete with products offered by other vendors, and with proprietary
software developed by third-party professional service organizations and
management information systems departments of potential customers. Due to the
relatively low barriers for entry in the software market, the Company expects
additional competition from other established and emerging companies as the
client/server applications software market continues to develop and expand. The
Company also expects that competition will increase as a result of software
industry consolidations. In addition, current and potential competitors have
established or may establish cooperative relationships among themselves or with
third parties to increase the ability of their products to address the needs of
the Company's prospective customers. Accordingly, it is possible that new
competitors or alliances among competitors may emerge
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and rapidly acquire significant market share. Increased competition is likely to
result in price reductions, reduced gross margins and loss of market share, any
of which would have a material adverse effect on the Company's business, results
of operations and financial condition. There can be no assurance that the
Company will be able to compete successfully against current or future
competitors or that competitive pressures will not have a material adverse
effect on the Company's business, results of operations and financial condition.
See "Business -- Risk Factors -- Intense Competition."
INTELLECTUAL PROPERTY
The Company's success is heavily dependent upon its proprietary technology. The
Company regards its software as proprietary, and relies primarily on a
combination of contract, copyright and trademark law, trade secrets,
confidentiality agreements and contractual provisions to protect its proprietary
rights. The Company has no patents or patent applications pending, and existing
trade secrets and copyright laws afford only limited protection. Despite the
Company's efforts to protect its proprietary rights, unauthorized parties may
attempt to copy aspects of the Company's products or to obtain and use
information that the Company regards as proprietary. Policing unauthorized use
of the Company's products is difficult, and while the Company is unable to
determine the extent to which piracy of its software products exists, software
piracy can be expected to be a persistent problem. The Company makes source code
available to certain of its customers which may increase the likelihood of
misappropriation or other misuse of the Company's software. In addition, the
laws of some foreign countries do not protect the Company's proprietary rights
to the same extent as do the laws of the United States. There can be no
assurance that the steps taken by the Company to protect its proprietary rights
will be adequate or that the Company's competitors will not independently
develop technologies that are substantially equivalent or superior to the
Company's technologies.
The Company is not aware that any of its products, trademarks or other
proprietary rights infringe the proprietary rights of third parties. However,
there can be no assurance that third parties will not assert infringement claims
against the Company in the future with respect to current or future products. As
the number of software products in the industry increases and the functionality
of these products further overlap, the Company believes that software developers
may become increasingly subject to infringement claims. Any such claims, with or
without merit, can be time consuming and expensive to defend, cause product
shipment delays or require the Company to enter into royalty or licensing
agreements. Such royalty and license agreements, if required, may not be
available on terms acceptable to the Company, or at all, which could have a
material adverse effect on the Company's business, results of operations and
financial condition.
The Company also licenses software from third parties which is incorporated into
its products. These licenses expire from time to time. In addition, the Company
generally does not have access to source code for the software supplied by these
third parties. Certain of these third parties are small companies that do not
have extensive financial and technical resources. If any of these relationships
were terminated or if any of these third parties were to cease doing business,
the Company may be forced to expend significant time and development resources
to replace the licensed software. Such an event would have a material adverse
effect upon the Company's business, results of operations and financial
condition.
Although the Company has certain common law rights in relation to its
trademarks, service marks and product names, it does not have any trademark or
service mark registrations. The Company has two pending applications for
"COMPUTRON." A number of corporations and businesses have trademarks and service
marks which are similar to or identical to "COMPUTRON." Although the Company
believes that its "COMPUTRON" mark and other trademarks and service marks are
distinct, there can be no assurance that the Company will be able to register or
protect its trademarks and service marks. See "Business -- Risk Factors --
Dependence on Proprietary Rights; Risks of Infringement."
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EMPLOYEES
As of December 31, 1995, the Company had 431 full-time employees, including 99
in product development and engineering, 159 in customer service and support, 123
in sales and marketing, and 50 in finance and administration. The Company's
employees are not covered by any collective bargaining agreements. The Company
believes that its relations with its employees are good.
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MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY MANAGEMENT EMPLOYEES
The directors, executive officers and key management employees of the Company
are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Andreas Typaldos ...................... 50 Chief Executive Officer and Chairman of the Board
Joseph Esposito ....................... 43 President, Worldwide Operations
Richard Yonker ........................ 48 Vice President, Chief Financial Officer, Treasurer and
Secretary
Elias Typaldos ........................ 45 Vice President, Research and Development and Director
Gennaro Vendome ....................... 49 Vice President, Enterprise Sales and Director
William Simmons ....................... 49 Vice President, Client Services, Worldwide
Alex Plavocos ......................... 49 Vice President, Marketing
Carl Rosenberg ........................ 45 Vice President, Worldwide Sales
Gregory Kopchinsky (1) ................ 44 Director
Robert Migliorino (1) ................. 45 Director
</TABLE>
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(1) Member of the Audit and Compensation Committees.
ANDREAS TYPALDOS, a founder of the Company, has been Chief Executive Officer and
Chairman of the Board of Directors since the Company's formation in 1978 and was
also the President until October 1994, Prior to founding the Company, Mr. A.
Typaldos was the principal architect and manager of the MISTER WIZARD computer
system of the AT&T Corp./New York Telephone Co.
JOSEPH ESPOSITO joined the Company as President, Worldwide Operations in October
1994. From July 1991 to September 1994, Mr. Esposito held various senior
management positions at Ross Systems, Inc., a software company, most recently as
Vice President of Client Services. From 1979 to July 1991, Mr. Esposito held
various senior management positions with Wang, which produces computing
equipment, related peripheral devices and workflow/image management software.
RICHARD YONKER joined the Company as Vice President, Chief Financial Officer,
Treasurer and Secretary in December 1995. Prior to joining the Company, Mr.
Yonker was Senior Vice President and Chief Financial Officer of Asyst
Technologies, a semiconductor capital equipment company. From December 1992 to
April 1994, Mr. Yonker was Vice President, Finance and Information Systems at
the ASK Group, a software company. From 1981 to November 1992, Mr. Yonker held
various international positions at Digital Equipment Corporation, including
Europe-Finance Director.
ELIAS TYPALDOS, a founder of the Company, has been Vice President, Research and
Development and a director since the Company's formation in 1978.
GENNARO VENDOME, a founder of the Company, has been Vice President, Enterprise
Sales and a director since the Company's formation in 1978. Mr. Vendome was
Treasurer of the Company from 1981 until 1991 and Secretary of the Company from
1982 until 1991. Prior to joining the Company, Mr. Vendome was a project leader
of the MISTER WIZARD computer system of the AT&T Corp./New York Telephone Co.
WILLIAM SIMMONS joined the Company in May 1995 as Vice President, Client
Services, Worldwide. Mr. Simmons was the Vice President of Business Development
at Nationar, a financial services organization, from November 1993 to May 1995.
Mr. Simmons served in various capacities, including President and
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Chief Operating Officer, at Metering Services Incorporated ("MSI"), a software
integrator working with the utility and communication industries, from 1987 to
November 1993. Prior to joining MSI, Mr. Simmons held a number of sales, sales
management, training and development positions at Xerox Corp. and Wang.
ALEX PLAVOCOS joined the Company in June 1994 as Vice President, Marketing. From
July 1991 to June 1994, Mr. Plavocos was Director of Corporate Marketing for
Information Builders Inc., a software company. Mr. Plavocos held various
marketing positions with Applied Data Research/Computer Associates, a software
company, from November 1983 to June 1991.
CARL ROSENBERG joined the Company in May 1994 as Vice President, North American
Sales. Mr. Rosenberg was promoted to Vice President, Worldwide Sales in March,
1996. From January 1990 to May 1994, Mr. Rosenberg was Vice President and
General Manager of the UNIX division of Information Builders Inc.
GREGORY KOPCHINSKY has been a director since 1994. Mr. Kopchinsky is a partner
of the venture capital partnership Canaan Partners, which through its affiliates
is a principal stockholder of the Company. Mr. Kopchinsky joined Canaan Partners
as a General Partner in 1990. From 1984 to 1990, he was a Vice President at J.P.
Morgan with principal responsibility for private debt and equity financings.
Prior to joining J.P. Morgan, Mr. Kopchinsky was an attorney with Davis Polk &
Wardwell specializing in complex financing transactions.
ROBERT MIGLIORINO has been a director since 1991. Mr. Migliorino is a founding
partner of the venture capital partnership Canaan Partners, which through its
affiliates is a principal stockholder of the Company. Prior to establishing
Canaan Partners in 1987, he spent 15 years with General Electric Co. in their
Drive Systems, Industrial Control, Power Delivery, Information Services and
Venture Capital businesses.
All of the current members of the Company's Board of Directors were elected to
the Board of Directors in accordance with certain provisions of a voting
agreement and the Company's Certificate of Incorporation. Two of the seats on
the Company's Board of Directors are currently vacant. Mr. A Typaldos and Mr. E.
Typaldos are brothers.
RISK FACTORS
LIMITED HISTORY OF PROFITABILITY; PRIOR LOSSES
The Company incurred net losses of $2.4 million for 1994, and a net loss of $8.6
million for 1995. The Company also incurred a net loss for each of the years
ended December 31, 1990, 1991, 1992, and 1993. As of December 31, 1995, the
Company had an accumulated deficit of $17.5 million. There can be no assurance
that the Company will be profitable in the future. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
POTENTIAL FOR SIGNIFICANT FLUCTUATIONS IN QUARTERLY OPERATING RESULTS;
SEASONALITY
The Company has experienced, and may in the future experience, significant
quarter to quarter fluctuations in revenues and results of operations. Such
fluctuations may result in volatility in the price of the Company's Common
Stock. Quarterly revenues and results of operations may fluctuate as a result of
a variety of factors, including the lengthy sales cycle for the Company's
products, the proportion of revenues attributable to license fees versus
services, the amount of revenue generated by resales of third party software,
changes in product mix, demand for the Company's products, the size and timing
of individual license transactions, the introduction of new products and product
enhancements by the Company or its
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<PAGE> 14
competitors, changes in customer budgets, competitive conditions in the industry
and general economic conditions. Further, the license of the Company's products
generally involves a significant commitment of capital and may be delayed due to
time-consuming authorization procedures within an organization. For these and
other reasons, the sales cycles for the Company's products are typically lengthy
and subject to a number of significant risks over which the Company has little
or no control, including customers' budgetary constraints and internal
authorization reviews. The Company has historically operated with little
backlog, since its products are generally shipped as orders are received. The
Company has historically recognized a substantial portion of its revenues in the
last month of a quarter, with these revenues frequently concentrated in the last
week of the quarter. License fees in any quarter are substantially dependent on
orders booked and shipped in the last month and last week of that quarter.
Delays in the timing of recognition of specific revenues may adversely and
disproportionately affect the Company's results of operations because a high
percentage of the Company's operating expenses are relatively fixed, and planned
expenditure such as continued expansion of the Company's sales force, are based
primarily on sales forecasts and only a small percentage of the Company's
operating expenses vary with its revenues. Accordingly, the Company believes
that period to period comparisons of results of operations are not necessarily
meaningful and should not be relied upon as an indication of future results of
operations. There can be no assurance that the Company will be profitable in any
future quarter.
The Company's business has experienced and is expected to continue to experience
significant seasonality, due in part to customer buying patterns. In recent
years until 1995, the Company generally has had greater demand for its products
in the fourth quarter. These fluctuations are caused primarily by customer
budgeting and purchasing patters and by the Company's sales commission policies
which compensate sales personnel on the basis of quarterly and annual
performance quotas. The Company believes this pattern may continue in the
future.
Due to the foregoing factors, it is likely that in some future quarter the
Company's operating results will be below the expectations of public market
analysts and investors. Such an event would have a material adverse effect on
the price of the Company's Common Stock. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
INTENSE COMPETITION
The financial applications and business software market is intensely competitive
and rapidly changing. A number of companies offer products similar to the
Company's products and target the same customers as the Company. The Company
believes its ability to compete depends upon many factors within and outside its
control, including the timing and market acceptance of new products and
enhancements developed by the Company and its competitors, product
functionality, performance, price, reliability, customer service and support,
sales and marketing efforts and product distribution. The primary competition
for Computron Financials are the financial applications software offered by
Oracle Corporation, PeopleSoft, Inc. and SAP AG. The principal competitors for
the Company's Computron Workflow and Computron COOL software are Wang and
FileNet Corporation. The Company has entered into an agreement with Wang
pursuant to which Wang has the right to license Computron COOL software to third
parties under its own private label and modify such software. In exchange, Wang
paid a non-refundable source code and fully paid-up license fee to the Company.
The Company anticipates that Wang's COOL-based product may become a significant
competitor to Computron COOL. Most of the Company's competitors are
substantially larger than the Company and have significantly greater financial,
technical and marketing resources and established, extensive direct and indirect
channels of distribution. As a result, they may be able to respond more quickly
to new or emerging technologies and changes in customer requirements, or to
devote greater resources to the development, promotion and sale of their
products than the Company. The Company's products also compete with products
offered by other vendors, and with proprietary software developed by third-party
professional service organizations and management information systems
departments of
14
<PAGE> 15
potential customers. Due to the relatively low barriers to entry in the software
market, the Company expects additional competition from other established and
emerging companies as the client/server applications software market continues
to develop and expand. The Company also expects that competition will increase
as a result of software industry consolidations. In addition, current and
potential competitors have established or may establish cooperative
relationships among themselves or with third parties to increase the ability of
their products to address the needs of the Company's prospective customers.
Accordingly, it is possible that new competitors or alliances among competitors
may emerge and rapidly acquire significant market share. Increased competition
is likely to result in price reductions, reduced gross margins and loss of
market share, any of which would have a material adverse effect on the Company's
business, results of operations and financial condition. There can be no
assurance that the Company will be able to compete successfully against current
or future competitors or that competitive pressures will not have a material
adverse effect on the Company's business, results of operations and financial
condition. See "Business-Competition."
MANAGEMENT OF GROWTH
The Company has recently experienced significant growth. This growth has placed
a significant strain on the Company's management, administrative and operational
resources and financial control systems. The Company has recently added a number
of key officers, including Joseph Esposito, as President, Worldwide Operations,
in October 1994 and Richard C. Yonker, as Chief Financial Officer, in December
1995. The Company's future results of operations will depend on its ability to
continue to broaden its senior management group, and on the ability of its
officers and key employees to continue to implement and improve its management,
administrative and operational systems and to expand, train, manage and motivate
its employee base. The Company's inability to manage growth effectively, should
it occur, could have a material adverse effect on the quality of the Company's
products, the Company's ability to retain key personnel and the Company's
results of operations.
Following the audit of the Company's consolidated financial statements for 1994,
the Company received a management letter from its independent public
accountants, Arthur Andersen LLP, which enumerated material weaknesses in the
Company's financial and accounting processes, controls, reporting systems and
procedures. The Company's independent public accountants highlighted the
Company's need for additional financial and accounting personnel with software
industry experience. In addition, the Company's independent public accountants
noted (i) the need for uniformity in the language of its contracts and
recommended that the Company standardize the terms of its license agreements and
expand its internal contract review and approval procedures , (ii) deficiencies
in the organization of customer and contract files and recommended that the
Company improve and standardize record keeping, (iii) the need for expanded and
formalized accounts receivable collection procedures, (iv) the need for improved
documentation and record keeping relating to consulting service projects, and
(v) the need to develop policies and procedures to accurately identify the date
when technological feasibility of developed software has been attained and to
improve the documentation and record keeping for capitalized software
development costs and to do so on a timely basis. During 1995, the Company
experienced significant turnover of its senior financial and accounting
personnel which management believes delayed the implementation of certain
improvements and resulted in material weaknesses in these same areas. The
December 31, 1995 audit resulted in material adjustments to the fourth quarter's
revenues and expenses. Arthur Andersen LLP has notified the Company that it
intends to issue a material weakness letter in connection with their completion
of the audit of the Company's financial statements for 1995. The matters to be
discussed in the letter are expected to be substantially the same as those
discussed above. In addition, they have recommended that the Company implement
improved internal accounting control procedures approved by the audit committee
of the Board of Directors and reorganize and upgrade the contracts
administration processes, procedures and personnel to ensure proper revenue
recognition and financial reporting. The Company believes that further additions
to its financial and accounting staff, and improvements in financial and
accounting controls, are needed to
15
<PAGE> 16
correct such material weaknesses and to manage further growth, should it occur.
The failure to implement such changes or to hire additional financial and
accounting personnel on a timely basis could have a material adverse effect on
the Company's business, results of operations and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Management."
DEPENDENCE ON PRINCIPAL PRODUCTS
Substantially all of the Company's revenues are derived from the licensing of
Computron Financials, Computron Workflow and Computron COOL and fees from
related services. These products and services are expected to continue to
account for substantially all of the Company's revenues for the foreseeable
future. Accordingly, the Company's future results of operations will depend, in
part, on achieving broader market acceptance of these products and services, as
well as the Company's ability to continue to enhance these products and services
to meet the evolving needs of its customers. A reduction in demand or increase
in competition in the market for financial applications or business software, or
decline in sales of such products and services, could have a material adverse
effect on the Company business, results of operations and financial condition.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business-Products."
NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE; RISK OF PRODUCT DEFECTS,
DEVELOPMENT DELAYS AND LACK OF MARKET ACCEPTANCE
The financial applications and business software market is characterized by
rapid technological change, changes in customer requirements, frequent new
product introductions and enhancements, emerging industry standards. The
introduction of products embodying new technologies and emergence of new
industry standards can render existing products obsolete and unmarketable.
Accordingly, the life cycles of the Company's products are difficult to
estimate. The Company's future success will depend in part upon its ability to
enhance its current products and to develop and introduce new products that
respond to evolving customer requirements and keep pace with technological
development and emerging industry standards, such as new operating systems,
hardware platforms, interfaces and third party applications software. There can
be no assurance that the Company will be successful in developing and marketing
product enhancements or new products that respond to technological change,
changes in customer requirements, or emerging industry standards, that the
Company will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of such products and
enhancements, or that any new products or enhancements that it may introduce
will achieve market acceptance. The inability of the Company for technological
or other reasons, to develop and introduce new products or enhancements in a
timely manner in response to changing customer requirements, technological
change or emerging industry standards, would have a material adverse effect on
the Company's business, results of operations and financial condition.
Software products as complex as those offered by the Company often encounter
development delays and may contain undetected errors or failures when introduced
or when new versions are released. The Company has in the past experienced
delays in the development of software by third parties which software is being
licensed to and implemented by customers who are simultaneously licensing and
implementing the Company's products. Those delays have resulted in delays in the
development and shipment of the Company's products. There can be no assurance
that, despite testing by the Company and by current and potential customers,
errors will not be found in new products or enhancements after commencement of
commercial shipments, or that the Company will not experience development
delays, resulting in loss of or delay in market acceptance of a new product or
enhancement, which could have a material adverse effect on the Company's
business, results of operations and financial condition. See "Business-Product
Development."
16
<PAGE> 17
DEPENDENCE ON PROPRIETARY RIGHTS; RISKS OF INFRINGEMENT
The Company's success is heavily dependent upon its proprietary technology. The
Company regards its software as proprietary, and relies primarily on a
combination of contract, copyright and trademark law, trade secrets,
confidentiality agreements and contractual provisions to protect its proprietary
rights. The Company has no patents or patent applications pending, and existing
trade secrets and copyright laws afford only limited protection. Despite the
Company's efforts to protect its proprietary rights, unauthorized parties may
attempt to copy aspects of the Company's products or to obtain and use
information that the Company regards as proprietary. Policing unauthorized use
of the Company's products is difficult, and while the Company is unable to
determine the extent to which piracy of its software products exists, software
piracy can be expected to be a persistent problem. The Company makes source code
available to certain of its customers which may increase the likelihood of
misappropriation or other misuse of the Company's software. In addition, the
laws of some foreign countries do not protect the Company's proprietary rights
to the same extent as do the laws of the United States. There can be no
assurance that the steps taken by the Company to protect its proprietary rights
will be adequate or that the Company's competitors will not independently
develop technologies that are substantially equivalent or superior to the
Company's technologies.
The Company is not aware that any of its products, trademarks or other
proprietary rights infringe the proprietary rights of third parties. However,
there can be no assurance that third parties will not assert infringement claims
against the Company in the future with respect to current or future products. As
the number of software products in the industry increases and the functionality
of these products further overlap, the Company believes that software developers
may become increasingly subject to infringement claims. Any such claims, with or
without merit, can be time consuming and expensive to defend, cause product
shipment delays or require the Company to enter into royalty or licensing
agreements. Such royalty and license agreements, if required, may not be
available on terms acceptable to the Company, or at all, which could have a
material adverse effect on the Company's business, results of operations and
financial condition. See "Business-Intellectual Property."
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS
The Company derived approximately $4.4 million, $9.1 million, and $14.2 million,
or 18.6%, 28.0%, and 26.9% of its total revenues, from customers outside of the
United States in 1993, 1994 and 1995, respectively. The Company expects that
such revenues will continue to represent a significant percentage of its total
revenues in the future. The Company believes that its continued growth and
profitability will require expansion of its sales in international markets. The
Company intends to continue to expand its operations outside of the United
States and enter additional international markets, which will require
significant management attention and financial resources. There can be no
assurance, however, that the Company will be able to maintain or increase
international market demand for its products and services. Most of the Company's
international license fees and services revenue are denominated in foreign
currencies. Decreases in the value of foreign currencies relative to the U.S.
dollar could result in losses from foreign currency translations. The Company
does not currently hedge its foreign exchange exposure. With respect to the
Company's sales that are U.S. dollar-denominated, decreases in the value of
foreign currencies relative to the U.S. dollar could make the Company's products
less price competitive. Additional risks inherent in the Company's international
business activities generally include unexpected changes in regulatory
requirements, tariffs and other trade barriers, costs of localizing products for
foreign countries, lack of acceptance of localized products in foreign markets,
longer accounts receivable payment cycles, difficulties in managing
international operations, potentially adverse tax consequences, restrictions on
repatriation of earnings and the burdens of complying with a wide variety of
foreign laws. There can be no assurance that such factors will not have a
material adverse effect on the Company's future international
17
<PAGE> 18
revenues and, consequently, on the Company's business, results of operations and
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
EXPANSION OF INDIRECT CHANNELS
An integral part of the Company's strategy is to expand indirect marketing
channels using systems integrators and to increase the proportion of the
Company's customers licensed through such indirect channels. The Company is
currently investing, and intends to continue to invest, significant resources to
develop indirect marketing channels. There can be no assurance that the Company
will be able to attract and retain systems integrators that will be able to
market the Company's products effectively and will be qualified to provide
timely and cost-effective customer support and service. The Company's agreements
with such third parties are generally not exclusive and many of those third
parties also market competitive products. In many cases, these agreements may be
terminated by either party at any time without cause. The inability to attract
and retain systems integrators could have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Business-Sales and Marketing" and "Strategic Alliances."
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<PAGE> 19
RELIANCE ON CERTAIN RELATIONSHIPS
The Company relies on relationships with a number of consultants, systems
integrators and software and hardware vendors to enhance its product development
and marketing and sales efforts, to implement the Company's software products
and to support its customers. These relationships, many of which are not the
subject of formal written agreements, provide marketing and sales leads to the
Company's direct sales force, assistance in the Company's product development
process and assistance in the service and implementation of the Company's
products. There can be no assurance that these companies, most of which have
significantly greater financial and marketing resources than the Company, will
not develop or market software products which compete with the Company's
products in the future or will not otherwise discontinue their relationships
with or support of the Company. The failure by the Company to maintain its
existing relationships, or to establish new relationships in the future, because
of a divergence of interests, acquisition of one or more of these third parties
or other reason, could have a material adverse effect on the Company's business,
results of operations and financial condition.
The Company also licenses software from third parties which is incorporated into
its products. These licenses expire from time to time. In addition, the Company
generally does not have access to source code for the software supplied by these
third parties. Certain of these third parties are small companies that do not
have extensive financial and technical resources. If any of these relationships
were terminated or if any of these third parties were to cease doing business,
the Company may be forced to expend significant time and development resources
to replace the licensed software. Such an event would have a material adverse
effect upon the Company's business, results of operations and financial
condition. See "Business-Strategic Alliances," and "Intellectual Property."
CONTROL BY EXISTING STOCKHOLDERS
The Company's senior management, directors and affiliated entities together
beneficially own approximately 67.1% of the outstanding shares of Common Stock.
As a result, these stockholders are able to exercise control over matters
requiring stockholder approval, including the elect directors, and mergers,
consolidations and sales of all or substantially all of the assets of the
Company. This may prevent or discourage tender offers for the Company's Common
Stock unless the terms are approved by such stockholders.
RELIANCE ON KEY PERSONNEL
The Company's future success will depend to a significant extent upon a number
of key management and technical personnel. The loss of the services of one or
more key employees, including Andreas Typaldos, Chief Executive Officer and
Chairman of the Board, could have a material adverse effect on the Company's
business. The Company is a party to employment agreements with certain key
personnel, including Andreas Typaldos. In addition, the Company is the
beneficiary of $2.15 million in key-person life insurance on the life of Andreas
Typaldos and is the beneficiary of key-person life insurance on the lives of
certain other key personnel. The Company believes that its future success will
also depend in large part upon its ability to attract and retain highly skilled
technical, management, sales and marketing personnel. Competition for such
personnel is intense, and the services of qualified personnel are difficult to
obtain and replace. There can be no assurance that the Company will be
successful in attracting and retaining the personnel necessary to develop,
market, service and support its products and conduct its operations
successfully. The inability of the Company to attract, hire, assimilate and
retain such personnel, or to increase revenues at a rate sufficient to absorb
the resulting increased expenses, would have a material adverse effect on the
Company's business, results of operations and financial condition. See
"Business-Employees" and "Management."
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<PAGE> 20
POSSIBLE VOLATILITY OF STOCK PRICE
The trading price of the Company's Common Stock has been, and, in the future
could be subject to significant fluctuations in response to variations in
quarterly operating results, the gain or loss of significant contracts, changes
in earning estimates by analysts, announcements of technological innovations or
new products by the Company or its competitors, general conditions in the
software and computer industries and other events or factors. In addition, the
stock market in general has experienced extreme price and volume fluctuations
which have affected the market price from many companies in industries similar
or related to that of the Company and which have been unrelated to the operating
performance of such companies. These market fluctuations may adversely affect
the market price of the Company's Common Stock.
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER AND BY-LAW PROVISIONS AND DELAWARE LAW
The Company's Fourth Amended and Restated Certificate of Incorporation
authorizes the Board of Directors to issue, without stockholder approval,
5,000,000 shares of Preferred Stock with voting, conversion and other rights and
preferences that could materially and adversely affect the voting power or other
rights of the holders of Common Stock. Although the Company has no current plans
to issue any shares of Preferred Stock, the issuance of Preferred Stock or of
rights to purchase Preferred Stock could be used to discourage an unsolicited
acquisition proposal. In addition, the possible issuance of Preferred Stock
could discourage a proxy contest, make more difficult the acquisition of a
substantial block of the Company's Common Stock or limit the price that
investors might be willing to pay in the future for shares of the Company's
Common Stock. Certain provisions of the Company's by-laws and of Delaware law
applicable to the Company could delay or make more difficult a merger, tender
offer or proxy contest involving the Company.
ITEM 2. PROPERTIES
FACILITIES
The Company's corporate headquarters are located in Rutherford, New Jersey in
leased facilities consisting of 40,000 square feet of office space occupied
under a lease expiring in December 1998 with an option to renew the lease for
one additional three-year period. The Company leases additional facilities and
offices, including facilities located in the Atlanta, Boston, Chicago, Los
Angeles, San Francisco, Toronto and Washington, D.C. metropolitan areas. The
Company also leases sales and support offices outside of North America in
Australia, Hong Kong, Indonesia, Poland, Singapore and the United Kingdom. While
the Company believes that its facilities are adequate for its present needs, the
Company is consistently reviewing its needs and may add facilities in the
future. The Company believes that additional space would be available on
commercially reasonable terms.
ITEM 3. LEGAL PROCEEDINGS
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Pursuant to a Written Action of Stockholders, dated March 24, 1995, the holders
of a majority of the voting securities of the Company approved a change in the
name of the Company. Pursuant to Written Action of Stockholders, dated June 15,
1995, the holders of a majority of the voting securities of the Company adopted
the Company's 1995 Stock Option Plan. Pursuant to a Written Action of
Stockholders, dated June 20, 1995, the holders of a majority of the voting
securities of the Company (i) adopted the
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<PAGE> 21
Company's Amended and Restated By-Laws, (ii) waived their right of first offer,
(iii) waived their registration rights, and (iv) approved the issuance of the
shares in the Company's initial public offering. Pursuant to a Written Action of
Stockholders, dated June 21, 1995, the holders a majority of the voting
securities of the Company adopted the Third Amended and Restated Certificate of
Incorporation.
No matters were submitted to a vote of security holders during the fourth
quarter of 1995.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock is traded on the Nasdaq National Market under the
symbol "CTRN." The following table lists the high and low sales prices for the
periods set forth below:
<TABLE>
<CAPTION>
PERIOD HIGH LOW
------ ---- ---
<S> <C> <C>
Third quarter of 1995 ............. $21.00 $16.375
Fourth quarter of 1995 ............ $18.25 $13.50
First quarter of 1996 through March
27, 1996 .......................... $18.00 $ 6.375
</TABLE>
As of March 27, 1996 the approximate number of record holders of the Company's
Common Stock was 93.
The Company has never paid cash dividends on its capital stock. The Company
currently intends to retain any earnings for use in its business and does not
anticipate paying any cash dividends in the foreseeable future.
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<PAGE> 22
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below for the years ended
December 31, 1991, 1992, 1993, 1994 and 1995 have been derived from the audited
consolidated financial statements (as restated) of the Company. The consolidated
statement of operations data for the years ended December 31, 1993, 1994 and
1995, and the consolidated balance sheet data for the years ended December 31,
1994 and 1995 are derived from, and are qualified by reference to, the audited
consolidated financial statements (as restated) and the related notes thereto
included elsewhere in this report. The selected consolidated financial data set
forth below should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations' and the consolidated
financial statements of the Company and related notes thereto included elsewhere
in this report.
<TABLE>
<CAPTION>
(In thousands, except per share data)
Years Ended December 31,
----------------------------------------------------------------
1991 1992 1993 1994 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA (1):
Revenues:
License fees $ 8,728 $ 10,359 $ 12,694 $ 20,615 $ 33,766
Services 5,918 9,286 10,894 11,858 19,029
-------- -------- -------- -------- --------
Total revenues 14,646 19,645 23,588 32,473 52,795
Operating expenses:
Cost of license fees 370 467 850 2,447 4,673
Cost of services 2,867 6,569 6,935 7,738 12,988
Sales and marketing 5,046 8,324 8,788 11,845 19,387
General and administrative 2,782 3,797 5,668 5,607 11,269
Product development and
engineering 4,794 4,106 4,685 6,888 9,651
Purchased research and
development -- -- -- -- 3,797
-------- -------- -------- -------- --------
Total operating expenses 15,859 23,263 26,926 34,525 61,765
-------- -------- -------- -------- --------
Operating income (loss) (1,213) (3,618) (3,338) (2,052) (8,970)
Other income (expense) (43) 26 (203) (206) 742
-------- -------- -------- -------- --------
Loss before income taxes (1,256) (3,592) (3,541) (2,258) (8,228)
Provision (benefit) for income taxes (474) (245) 323 150 350
-------- -------- -------- -------- --------
Net income (loss) $ (782) $ (3,347) $ (3,864) $ (2,408) $ (8,578)
======== ======== ======== ======== ========
Pro forma net (loss) per common share $ (.46)
========
Shares used in pro forma per common
share computation 18,809
========
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
-------------------------------------------------------------
1991 1992 1993 1994 1995
------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (1):
Cash, cash equivalents and short-term
investments $ 7,891 $ 7,235 $ 4,554 $ 16,302 $46,651
Working capital 6,852 434 1,619 7,688 40,450
Total assets 15,076 15,585 16,119 35,075 71,367
Total debt and capital lease obligations 2,030 3,345 5,183 6,496 820
Redeemable convertible preferred stock 6,688 11,144 14,611 40,038 --
Total stockholders' equity (deficit) 2,410 (3,592) (10,907) (28,782) 46,398
</TABLE>
(1) The Consolidated financial data for 1992 through 1995 has been
restated. See Note 2 of Consolidated Financial Statements.
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<PAGE> 23
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Financial Statements and Notes thereto, as restated, and is qualified in its
entirety by reference thereto.
This Report contains statements of a forward-looking nature relating to future
events or the future financial performance of the Company. Investors are
cautioned that such statements are only predictions and that actual events or
results may differ materially. In evaluating such statements, investors should
specifically consider the various factors identified in this Report which could
cause actual results to differ materially from those indicated by such
forward-looking statements, including the matters set forth in "Business -- Risk
Factors."
OVERVIEW
The Company was founded in 1978 as a developer of custom financial software for
mission-critical applications in large organizations, primarily financial
institutions. In the early 1980's, the Company developed financial software for
legacy platforms and introduced sophisticated enterprise-wide financial
software. Identifying the need for client/server financial software applications
in the late 1980's, the Company commenced the re-architecture of its financial
software and began the development and deployment of new product, specifically a
workflow and document management product. In 1993, the Company introduced
Computron Financials and Computron Workflow, the client/server versions of its
financial and workflow products. Computron COOL was introduced in the latter
half of 1993. Since 1994, the Company has released versions of its products with
the capability to interoperate with popular RDBMS software.
The Company has continued to expand its direct sales force and its indirect
channels of distribution and in late 1994 began emphasizing indirect channels of
distribution for Computron Workflow and Computron COOL. The Company's sales and
marketing organization has grown from 67 employees at December 31, 1992 to 123
employees at December 31, 1995. The Company has also expanded its indirect
channels of distribution by establishing relationships with systems integrators,
distributors and third party service providers. The Company substantially
increased its sales and marketing and product development and engineering
expenses in 1994 and 1995 to complete the development, introduction, sale,
marketing and support of its new products. The Company has experienced, and may
in the future experience, significant fluctuations in its quarterly and annual
revenues and results of operations. The Company believes that domestic and
international operating results will continue to fluctuate significantly in the
future as a result of a variety of factors, including the timing of revenue
recognition related to significant license agreements, the lengthy sales cycle
for the Company's products, the proportion of revenues attributable to license
fees versus services, the amount of revenue generated by resales of third party
software, changes in product mix, demand for the Company's products, the size
and timing of individual license transactions, the introduction of new products
and product enhancements by the Company or its competitors, changes in
customers' budgets, competitive conditions in the industry and general economic
conditions. For a description and certain factors which may affect the Company's
operating results, see "Business - Risk Factors -- Potential for Significant
Fluctuations in Operating Results; Seasonality" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Certain Factors
Affecting Operating Results."
The Company generated a net loss of $2.4 million in 1994, and a net loss of $8.6
million for 1995. The Company also incurred a net loss for each of the years
ended December 31, 1990, 1991, 1992, and 1993.
23
<PAGE> 24
As of December 31, 1995, the Company had an accumulated deficit of $17.5
million. There can be no assurance that the Company will be profitable in the
future.
The Company's revenues are derived from license fees and services. Revenues for
services and training are recognized upon performance of the services. The
Company's license agreements generally do not provide a right of return.
Historically, the Company's backlog has been insubstantial, since products are
generally shipped as orders are received.
Following the audit of the Company's consolidated financial statements for 1994,
the Company received a management letter from its independent public
accountants, Arthur Andersen LLP, which enumerated material weaknesses in the
Company's financial and accounting processes, controls, reporting systems and
procedures. The Company's independent public accountants highlighted the
Company's need for additional financial and accounting personnel with software
industry experience. In addition, the Company's independent public accountants
noted (i) the need for uniformity in the language of its contracts and
recommended that the Company standardize the terms of its license agreements and
expand its internal contract review and approval procedures, (ii) deficiencies
in the organization of customer and contract files and recommended that the
Company improve and standardize record keeping, (iii) the need for expanded and
formalized accounts receivable collection procedures, (iv) the need for improved
documentation and record keeping relating to consulting service projects, and
(v) the need to develop policies and procedures to accurately identify the date
when technological feasibility of developed software has been attained and to
improve the documentation and record keeping for capitalized software
development costs and to do so on a timely basis.
In response to the independent public accountants concerns, the Company has
taken a number of actions. It hired David A. Gerth, an executive with
substantial software industry experience, as Chief Financial Officer in July
1995. The Company subsequently hired a corporate controller, a services
financial analyst/controller and a consolidation accountant. When Mr. Gerth
resigned due to family considerations, the Company hired Mr. Richard C. Yonker,
an executive with substantial computer/technology industry experience, as Chief
Financial Officer in December 1995. In addition, the Company began implementing
more extensive financial and accounting processes, controls, reporting systems
and procedures which are designed to address those material weaknesses.
Specifically, in early 1995, the Company (i) began to develop standard
contractual terms for its license agreements and expand its contract review and
approval procedures, (ii) reorganized and centralized its customer files and
consulting services contracts and standardized its record keeping procedures,
and (iii) expanded and began to formalize its accounts receivable collection
efforts. During 1995, the Company experienced significant turnover of its senior
financial and accounting personnel which management believes delayed the
implementation of certain improvements and resulted in material weaknesses in
these same areas. The December 31, 1995 audit resulted in material adjustments
to the fourth quarter's revenues and expenses.
Arthur Andersen LLP has notified the Company that it intends to issue a material
weakness letter in connection with their completion of the audit of the
Company's financial statements for 1995. The matters to be discussed in the
letter are expected to be substantially the same as those discussed above. In
addition, they have recommended that the Company implement improved internal
accounting control procedures approved by the audit committee of the Board of
Directors and reorganize and upgrade the contracts administration processes,
procedures and personnel to ensure proper revenue recognition and financial
reporting. The Company believes that further improvements in its financial and
accounting controls are needed to correct such material weaknesses and manage
future growth, should it occur and concurs in such recommendations. The Company
intends to further improve its financial and accounting controls and implement
such recommendations during 1996. See "Business -- Risk Factors -- Management of
Growth."
24
<PAGE> 25
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated, certain operating data
as a percentage of total revenues:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------
1993 1994 1995
----- ----- -----
<S> <C> <C> <C>
Revenues:
License fees 53.8% 63.5% 64.0%
Services 46.2 36.5 36.0
----- ----- -----
Total revenues 100.0% 100.0 100.0
Costs and expenses:
Cost of license fees 3.6 7.5 8.9
Cost of services 29.4 23.8 24.6
Sales and marketing 37.3 36.5 36.7
General and administrative 24.0 17.3 21.3
Product development and engineering 19.9 21.2 18.3
Purchased research and development -- -- 7.2
----- ----- -----
Total costs and expenses 114.2 106.3% 117.0
----- ----- -----
Operating loss (14.2) (6.3) (17.0)
Other income (expense) (0.8) (0.6) 1.4
----- ----- -----
Loss before income taxes (15.0) (6.9) (15.6)
Provision for income taxes 1.4 0.5 0.7
----- ----- -----
Net loss (16.4)% (7.4)% % (16.3)%
----- ----- -----
</TABLE>
TOTAL REVENUES
The Company's revenues are derived from license fees and services. Total
revenues increased from $23.6 million in 1993 to $32.5 million in 1994 and $52.8
million in 1995 representing increases of 37.7% and 62.6%, respectively. The
increase in 1994 was attributable primarily to significant growth in license
fees and modest growth in services revenue. In 1995, both license fees and
services revenue experienced significant growth. Separate individual customers
accounted for 11.8% and 24.8% of Company's total revenues in 1993 and 1994,
respectively. During 1995, Polish State Railways Central Office of Purchasing
and Sales Ferpol, a division of Polish State Railways accounted for
approximately 10.0% of total revenues.
The Company derived approximately $4.4 million, $9.1 million and $14.2 million,
or 18.6%, 28.0% and 26.9% of its total revenues, from customers outside of the
United States in 1993, 1994 and 1995, respectively. The Company expects that
revenues derived from such customers will continue to represent a significant
percentage of its total revenues in the future.
LICENSE FEES
License fees include revenues from software license agreements entered into
between the Company and its customers with respect to both the Company's
products and third party products resold by the Company. License fees increased
62.4% from 1993 to 1994, and 63.8% from 1994 to 1995. These increases were
attributable to increased market acceptance of the Company's products which
resulted in an increased number of licenses of the Company's software, as well
as increased average dollar amounts per order. In addition, license fee revenues
for 1994 and 1995 included approximately $1.1 million and $2.8 million,
25
<PAGE> 26
respectively, of resales of third-party software, primarily RDBMS software. For
1995, license fee revenues included the payment to the Company of a
non-refundable source code and fully paid-up license fee in the amount of
approximately $3.7 million pursuant to the Company's agreement with Wang. The
Company's license fees in the fourth quarter of 1995 decreased to $4.9 million
from $12.4 million in the fourth quarter of 1994. Licenses fee revenue for the
fourth quarter of 1994 included a single $5.3 million license expansion
agreement from an existing customer. Excluding this agreement, the number and
dollar amount of license agreements were approximately the same for the fourth
quarters of 1994 and 1995.
SERVICES REVENUE
Services revenue includes fees from software maintenance agreements, training,
installation and consulting services. Maintenance fees, including first year
maintenance, are billed separately and are recognized ratably over the period of
the maintenance agreement. Training and consulting service revenues are
recognized as the services are performed. Services revenue increased 8.8% from
1993 to 1994, and 60.5% from 1994 to 1995. The increases in services revenue in
1994 and 1995 were attributable primarily to increased training and consulting
services which resulted from increased licensing of the Company's products and
increased maintenance revenues related to a larger installed base of the
Company's products.
COST OF LICENSE FEES
Cost of license fees consists primarily of amounts paid to third parties with
respect to products resold by the Company in conjunction with licensing of the
Company's products, amortization of capitalized software development costs, and,
to a lesser extent, the costs of product media, duplication, manuals and
shipments. The first two elements can vary substantially from period to period
while the third element typically remains relatively stable as a percentage of
license fees.
Cost of license fees increased from $.9 million in 1993 to $2.4 million in 1994
and were $4.7 million in 1995. These costs represented 6.7%, 11.9% and 13.8% of
license fees in 1993, 1994 and 1995, respectively.
The substantial dollar and percentage increase in cost of license fees as a
percentage of license fees from 1993 to 1994 was due primarily to increased cost
of license fees associated with third party software resold to customers in
conjunction with the licensing of the Company's products and higher amortization
of capitalized software development costs associated with products developed in
1992 and 1993. The dollar cost of license fees increased from 1994 to 1995,
primarily as a result of increased costs associated with third party software
resold to customers, and higher amortization of capitalized software development
costs. The costs associated with third party software resold to customers was
$0.4 million, $ 1.8 million and $ 3.3 million in 1993, 1994 and 1995,
respectively.
COST OF SERVICES
Cost of services consists primarily of personnel costs for training, consulting
and customer support and, starting in 1994, related travel costs, and costs of
training third party service and support organizations for the Company's
products. Total service costs increased from $6.9 million in 1993 to $7.7
million in 1994 and $13.0 million in 1995 and represented 63.7%, 65.3% and 68.3%
of service revenues in 1993, 1994, and 1995, respectively. During these periods,
the cost of services as a percentage of service revenues increased slightly as a
result of the significant increase in personnel. The Company is in the process
of significantly expanding its customer service resources, principally its
consulting, telephone support, and account management staff in 1996, and
anticipates that, as a result, the dollar cost of services expenditures will
increase substantially, and that such expenses could increase as a percentage of
total revenues in future periods.
26
<PAGE> 27
SALES AND MARKETING
Sales and marketing expenses consist primarily of salaries, commissions and
bonuses paid to sales and marketing personnel and travel and promotional
expenses. Sales and marketing expenses increased from $8.8 million in 1993 to
$11.8 million in 1994 and $19.4 million in 1995, and represented 37.3%, 36.5%,
and 36.7% of total revenues, respectively. In 1994 and 1995, the Company
significantly increased its sales and marketing expense due primarily to
substantial hiring and increased sales commissions, and advertising costs.
Advertising costs and sales and marketing expenses decreased as a percentage of
total revenues in 1994 and 1995 as compared to 1993 as a result of increased
sales productivity. The Company anticipates that sales and marketing expenses
will increase in the future, as it expands its sales and marketing activities.
PRODUCT DEVELOPMENT AND ENGINEERING
Product development and engineering expenses consist primarily of engineering
personnel costs, costs of third party equipment and facilities and software for
development purposes and costs of outside consultants hired by the Company to
assist in its product development efforts. Product development and engineering
expenses are generally charged to operations as incurred. However, certain
software development costs are capitalized in accordance with Statement of
Financial Accounting Standards No. 86. Such capitalized software development
costs are generally amortized over periods not exceeding three years.
Software product development and engineering expenses (net of capitalized
software development costs) increased from $4.7 million in 1993 to $6.9 million
in 1994 and $9.7 million in 1995 and represented 19.9%, 21.2% and 18.3% of total
revenues, respectively. The Company capitalized software development costs of
$1.0 million, $0.9 million and $1.5 million in 1993, 1994, and 1995,
respectively. Gross product development and engineering expenses increased in
1994 and 1995 due primarily to the hiring and training of additional software
engineers to develop and enhance the Company's existing products and to develop
new products. The Company expects product development and engineering expenses
to continue to increase. The rate of capitalization of software development cost
may fluctuate depending on the mix and stage of development of the Company's
research and development projects and as a result of acquisitions.
PURCHASED RESEARCH AND DEVELOPMENT
In 1995, the Company expensed $3.8 million related to in-process research and
development acquired in the fourth quarter of 1995. Purchased research and
development represents the estimated fair value of development projects which
have not yet reached technological feasibility and have no future alternative
use.
GENERAL AND ADMINISTRATIVE
General and administrative expenses consist primarily of salaries of
administrative, executive and financial personnel, provision for doubtful
accounts and outside professional fees. General and administrative expenses
decreased from $5.7 million in 1993 to $5.6 million in 1994 and increased to
$11.3 million in 1995 representing 24.0%, 17.3% and 21.3% of total revenues in
those years, respectively. General and administrative expenses decreased in 1994
as compared to 1993 due primarily to a decrease in the provision for doubtful
accounts which was partially offset by the hiring of additional financial,
accounting and management personnel. The $5.7 million increase in general and
administration expenses in 1995, as compared to 1994, was due primarily to
increases in the provision for doubtful accounts of $1.2 million, increases in
payroll and benefits expenses associated with an increase of executive, finance
and administrative personnel in 1995, increased depreciation expense, and
increased professional fees, primarily
27
<PAGE> 28
due to expenses resulting from being a publicly held company. The increase in
the provision for doubtful accounts for 1995 compared to 1994 was due to a
number of factors including increased revenues, continued deterioration in the
aging of accounts receivable, implementation of an expanded accounts receivable
review process, specific write-offs on certain major accounts which were
renegotiated or settled, management's decision not to continue their efforts to
satisfy customer requests in order to collect certain overdue amounts and the
decision not to support certain legacy and proprietary platforms. Fluctuations
in the provision for doubtful accounts are expected to vary in relation to the
net accounts receivable balance due to the concentration of orders towards the
end of each quarter, the receipt of payments in accordance with contract terms
and the aging of specific account balances. While the Company anticipates
continuing dollar increases in general administrative expenses, it expects such
expenses as a percentage of total revenues to decrease over time.
OTHER INCOME (EXPENSE)
The Company incurred interest expense, in excess of interest income, of $203,000
and $206,000 in 1993 and 1994, respectively. Interest expense resulted primarily
from bank borrowings and other credit liabilities available to the Company. In
1995, the Company recorded interest income, in excess of interest expense, of
$742,000 resulting from the increase in the level of the Company's investment
funds and the decrease in the amount of bank borrowings.
INCOME TAXES PROVISION
The Company's provision for income taxes was $0.3 million, $0.2 million and $0.4
million in 1993, 1994 and 1995, respectively. These amounts are based on the
federal statutory rate of 34% and reflect the impact of state and foreign income
taxes and the utilization of net operating loss and credit carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
At December 31, 1995, the Company had cash, cash equivalents and short-term
investments of $46.7 million and working capital of $40.4 million. As of
December 31, 1995, the Company had the following facilities under its bank line
of credit: (i) fully available $4.0 million revolving line of credit which
expires on May 31, 1996 collateralized by the Company's accounts receivable (ii)
a fully available $1.0 million secured equipment financing facility expiring on
May 31, 1996, (iii) a fully available $2.0 million line of credit for letters of
credit which expires on May 31, 1996 and (iv) $751,000 standby letters of credit
collateralized by U.S. Treasury securities and certificates of deposit and
maturing on July 31, 1996. In addition, the Company has various equipment loans
outstanding with an aggregate balance of $428,000 at December 31, 1995 that bear
interest at rates ranging from 7.3% to 9.5% and which matures from time to time.
The Company's operating activities provided cash of $3.1 million in 1994 and
used cash of $4.8 million in 1995. Net cash provided in 1994 was primarily
composed of a significant increase in deferred revenue, principally due to
significant payments received by customers for software not yet delivered and,
to a lesser extent, services that had not yet been performed. Net cash used in
1995 was the result of the Company's net loss in 1995 and an increase in
accounts receivable, which were offset in part, by increases in the provision
for doubtful accounts and in accounts payable and accrued expenses.
The Company's investing activities have used cash of $3.1 million and $4.3
million in 1994 and 1995, respectively, principally for purchases of equipment
and capitalized software costs.
28
<PAGE> 29
Cash provided by financing activities was $10.9 million and $ 38.9 million in
1994 and 1995, respectively. During 1994, cash provided by financing activities
consisted primarily of net proceeds from the sale of Preferred Stock and amounts
borrowed under the Company's secured bank line of credit. During 1995, cash
provided by financing activities consisted primarily of net proceeds from the
Company's initial public offering, which were primarily offset by the repayment
of $5.7 million of long-term debt.
The Company has no significant capital commitments. The Company's aggregate
minimum operating lease payments for 1996 and 1997 are expected to be
approximately $2.9 million. The Company believes that its available cash and
cash equivalents, together with investment income and cash flows from
operations, will be sufficient to meet its cash requirements at least through
1996.
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item is incorporated by reference herein from
Part IV Item 14(a) (1) and (2).
ITEM 9. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE.
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company incorporates herein by reference the information concerning
directors and executive officers in its Notice of Annual Stockholders' Meeting
and Proxy Statement to be filed within 120 days after the end of the Company's
fiscal year (the "1996 Proxy Statement").
ITEM 11. EXECUTIVE COMPENSATION
The Company incorporates herein by reference the information concerning
executive compensation contained in the 1996 Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company incorporates herein by reference the information concerning security
ownership of certain beneficial owners and management contained in the 1996
Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company incorporates herein by reference the information concerning certain
relationships and related transactions contained in the 1996 Proxy Statement.
29
<PAGE> 30
PART IV
ITEM 14. EXHIBITS, CONSOLIDATED FINANCIAL STATEMENTS, SCHEDULES, AND REPORTS ON
FORM 8-K
a) Consolidated Financial Statements: (Restated)
<TABLE>
<CAPTION>
PAGE NO.
------------
<S> <C>
Report of Independent Public Accountants ............................................... 33
Consolidated Balance Sheets at December 31, 1994 and 1995 .............................. 34-35
Consolidated Statements of Operations for the years ended December 31, 1993, 1994
and 1995 .............................................................................. 36
Consolidated Statements of Redeemable Convertible Preferred Stock and Stockholders'
Equity (Deficit) for the years ended December 31, 1993, 1994 and 1995 ................ 37
Consolidated Statements of Cash Flows for the years ended December 31, 1993, 1994
and 1995 ............................................................................. 38
Notes to Consolidated Financial Statements ............................................ 39
</TABLE>
b) Consolidated Financial Statement Schedules: (Restated)
<TABLE>
<CAPTION>
<S> <C>
Report of Independent Public Accountants On Schedule..................................... 51
Schedule II - Valuation and Qualifying Accounts
Years Ended December 31, 1993, 1994 and 1995......................................... 52
</TABLE>
c) Reports on Form 8-K
None.
d) Exhibits.
3.1** Fourth Amended and Restated Certificate of
Incorporation.
3.2** Amended and Restated Bylaws of the Company.
4.1** Specimen Common Stock Certificate.
4.2 See Exhibits 3.1 and 3.2 for provisions of the
Certificate of Incorporation and Bylaws of the
Company defining rights of holders of Common Stock of
the Company.
10.1** Series B Preferred Stock Purchase Agreement, as
amended.
10.2** Employment Agreement between the Company and Andreas
Typaldos, as amended.
10.3** Employment Agreement between the Company and Elias
Typaldos, as amended.
10.4** Employment Agreement between the Company and Gennaro
Vendome, as amended.
10.5** 1992 Stock Option Plan
10.6** 1995 Stock Option Plan
10.7** Lease Agreement between the Company and Enterprise
Development Corporation.
10.8** Loan and Security Agreement between the Company and
Midlantic National Bank, as amended.
10.9** License Agreement between the Company and Pfizer
Inc., as amended.
10.10** OEM Software License and Distribution Agreement
between the Company and Wang
30
<PAGE> 31
Laboratories, Inc.
10.11** Amendment and Clarification Agreement between the
Company and Wang Laboratories, Inc.
10.12** Contract between the Company and Polish State
Railways Central Office of Purchasing and Sales
Ferpol, a division of Polish State Railways.
10.13** Program License Contract between the Company and
Deutsche Bank AG.
10.14** General Agreement for Information Systems Services
between the Company and Deutsche Bank AG.
10.15** Consulting Agreement between the Company and Canaan
Capital Limited Partnership and Canaan Capital
Offshore Limited Partnership, C.V.
11.1 Statement re: Computation of Per Share Earnings.
21.1 List of subsidiaries.
----------------------
** Incorporated by reference to the Exhibits filed with
the Company's Registration Statement on Form S-1,
File No. 33-93990.
31
<PAGE> 32
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Rutherford,
State of New Jersey, on this 16th day of April, 1997.
COMPUTRON SOFTWARE, INC.
By: /s/ ELIAS TYPALDOS
-------------------------------------------
Elias Typaldos
Chairman of the Board, Vice President Research
and Development
Pursuant to the requirements of the Securities Exchange Act of 1934 this report
has been signed by the following persons in the capacities indicated on April
16, 1997.
Signature Title(s)
Chairman of the Board, Vice President Research
/s/ ELIAS TYPALDOS and Development
- -------------------------------
(Elias Typaldos)
Chief Executive Officer, President and
/s/ JOHN A. RADE Director (Principal Executive Officer)
- -------------------------------
(John A. Rade)
Executive Vice President, Chief Financial
Officer, Treasurer and Secretary (Principal
/s/ MICHAEL R. JORGENSEN Financial and Accounting Officer)
- -------------------------------
(Michael R. Jorgensen)
Vice President Enterprise Sales and
/s/ GENNARO VENDOME Director
- -------------------------------
(Gennaro Vendome)
/s/ MICHEL BERTY Director
- -------------------------------
(Michel Berty)
/s/ GREGORY KOPCHINSKY Director
- -------------------------------
(Gregory Kopchinsky)
/s/ ROBERT MIGLIORINO Director
- -------------------------------
(Robert Migliorino)
/s/ WILLIAM VOGEL Director
- -------------------------------
(William Vogel)
32
<PAGE> 33
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Computron Software, Inc.:
We have audited the accompanying consolidated balance sheets of Computron
Software, Inc. (a Delaware Corporation) and subsidiaries as of December 31, 1994
and 1995, as restated (See Note 2), and the related statements of operations,
stockholders' equity (deficit) and cash flows for each of the three years in the
period ended December 31, 1995, as restated. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
Subsequent to March 29, 1996 (the date of our original report), as further
discussed in Note 5, several legal complaints have been filed by certain
stockholders against the Company and certain of its current and former officers
and directors, the outcome of which are uncertain at this time. Management
believes that the inability of the Company to resolve the claims that are the
basis for the lawsuits or to prevail in any related litigation could result in
the Company being required to pay substantial monetary damages for which the
Company may not be adequately insured, which could have a material adverse
effect on the Company's business, financial condition and results of operations.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Computron Software,
Inc. and subsidiaries as of December 31, 1994 and 1995, as restated, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1995, as restated, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
April 16, 1997
33
<PAGE> 34
COMPUTRON SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
December 31,
---------------------
1994 1995
(Restated) (Restated)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $15,186 $45,119
Restricted cash -- 751
Short-term investments 1,116 781
Accounts receivables, less reserves of $2,202 in 1994
and $2,028 in 1995 13,581 15,441
Income tax receivable -- 1,369
Prepaid expenses and other current assets 588 691
------- -------
Total current assets 30,471 64,152
------- -------
Computer and office equipment 5,766 8,117
Furniture and fixtures 565 979
Leasehold improvements 122 338
------- -------
6,453 9,434
Less - accumulated depreciation and amortization 4,592 5,787
------- -------
1,861 3,647
------- -------
Capitalized software development costs, net of
accumulated amortization of $1,342
in 1994 and $2,232 in 1995 1,835 2,440
Amount due from officers 298 --
Other assets 610 1,128
======= =======
$35,075 $71,367
======= =======
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
34
<PAGE> 35
COMPUTRON SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
December 31,
------------------------
1994 1995
(Restated) (Restated)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Current portion of long-term debt $ 1,249 $ 351
Current portion of obligations under capital leases 211 202
Accounts payable 1,202 2,184
Accrued expenses 3,745 7,298
Note payable 4,000 --
Deferred revenue 12,376 13,667
-------- --------
Total current liabilities 22,783 23,702
-------- --------
Long-term liabilities:
Long-term debt, less current portion 831 77
-------- --------
Obligations under capital leases, less current portion 205 190
-------- --------
Other liabilities -- 1,000
-------- --------
Commitments and contingencies (Notes 5 and 6)
Series A redeemable 10 % convertible preferred stock,
$ .01 par value, 1,050,000 shares authorized,
issued and outstanding in 1994 25,554 --
-------- --------
Series B redeemable 6.5 % convertible preferred stock,
$ .01 par value, authorized 1,500,000 shares,
1,466,946 shares issued and outstanding in 1994 14,484 --
-------- --------
Stockholders' equity (deficit):
Preferred stock, $.01 par value, authorized 5,000,000
shares, no shares issued and oustanding -- --
Class B nonvoting common stock, $ .01 par value,
authorized 15,000,000 shares; 7,900,000 shares
issued and outstanding at December 31, 1994 79 --
Class A nonvoting common stock, $ .01 par value,
authorized 15,000 shares; 8,400 shares issued
and outstanding at December 31, 1994 -- --
Common stock, $ .01 par value, authorized 50,000,000
shares; 20,744,186 shares issued and outstanding
at December 31, 1995 -- 207
Additional paid-in capital 1,633 63,796
Accumulated deficit (30,316) (17,524)
Cumulative translation adjustment (178) (81)
-------- --------
Total stockholders' equity (deficit) (28,782) 46,398
-------- --------
$ 35,075 $ 71,367
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
35
<PAGE> 36
COMPUTRON SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------
1993 1994 1995
(Restated) (Restated) (Restated)
<S> <C> <C> <C>
Revenues:
License fees $ 12,694 $ 20,615 $ 33,766
Services 10,894 11,858 19,029
-------- -------- --------
Total revenues 23,588 32,473 52,795
-------- -------- --------
Operating expenses:
Cost of license fees 850 2,447 4,673
Cost of services 6,935 7,738 12,988
Sales and marketing 8,788 11,845 19,387
General and administrative 5,668 5,607 11,269
Product development and engineering 4,685 6,888 9,651
Purchased research and development -- -- 3,797
-------- -------- --------
Total operating expenses 26,926 34,525 61,765
-------- -------- --------
Operating loss (3,338) (2,052) (8,970)
-------- -------- --------
Interest income (expense):
Interest income 152 290 1,238
Interest expense (355) (496) (496)
-------- -------- --------
Total interest income (expense) (203) (206) 742
-------- -------- --------
Loss before provision for income taxes (3,541) (2,258) (8,228)
Income tax provision 323 150 350
--------
======== ======== ========
Net loss $ (3,864) $ (2,408) $ (8,578)
======== ======== ========
Pro forma net loss per common share (Note 1) $ (0.46)
========
Pro forma weighted average number of
common shares (Note 1) 18,809
========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
36
<PAGE> 37
COMPUTRON SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED
STOCK AND STOCKHOLDERS' EQUITY (DEFICIT)
(In thousands)
<TABLE>
<CAPTION>
Redeemable Convertible
Preferred Stock
----------------------------------------------------- ----------------------
Class A
Series A Series B Common Stock
---------------------- ----------------------- ----------------------
Shares Amount Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1992(1) 1,050 $ 11,144 -- $ -- 8 $ --
Net loss -- -- -- -- -- --
Cumulative translation adjustment -- -- -- -- -- --
Accretion on redeemable convertible
preferred stock -- 3,467 -- -- -- --
------ -------- ------ -------- ---- ----------
Balance - December 31, 1993(1) 1,050 14,611 -- -- 8 --
Sale of Series B Preferred Stock, net
of related expenses -- -- 1,467 10,268 -- --
Net loss -- -- -- -- -- --
Cumulative translation adjustment -- -- -- -- -- --
Accretion on redeemable convertible
preferred stock -- 10,943 -- 4,216 -- --
------ -------- ------ -------- ---- ----------
Balance - December 31, 1994(1) 1,050 25,554 1,467 14,484 8 --
Net loss -- -- -- -- -- --
Cumulative translation adjustment -- -- -- -- -- --
Accretion on redeemable convertible
preferred stock -- 1,171 -- 665 -- --
Conversion of securities upon initial
public offering (1,050) (26,725) (1,467) (15,149) (8) --
Sale of common stock, net of related
expenses -- -- -- -- -- --
Exercise of stock options -- -- -- -- -- --
------ -------- ------ -------- ---- ----------
Balance - December 31, 1995(1) -- $ -- -- $ -- --
====== ======== ====== ======== ==== ==========
</TABLE>
<TABLE>
<CAPTION>
Stockholders' Equity (Deficit)
-----------------------------------------------------------------------------------------
Additional Cumulative
Class B Paid-in Accumulated Translation
Common Stock Common Stock Capital Deficit Adjustment
------------------ ------------------ -------- --------- -----------
Shares Amount Shares Amount
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - December 31, 1992(1) 7,900 $ 79 -- $ -- $ 1,897 $ (5,418) $(150)
Net loss -- -- -- -- -- (3,864) --
Cumulative translation adjustment -- -- -- -- -- -- 16
Accretion on redeemable convertible
preferred stock -- -- -- -- -- (3,467) --
------ ---- ------ ---- -------- -------- -----
Balance - December 31, 1993(1) 7,900 79 -- -- 1,897 (12,749) (134)
Sale of Series B Preferred Stock, net
of related expenses -- -- -- -- (264) -- --
Net loss -- -- -- -- -- (2,408) --
Cumulative translation adjustment -- -- -- -- -- -- --
Accretion on redeemable convertible
preferred stock -- -- -- -- -- (15,159) (44)
------ ---- ------ ---- -------- -------- -----
Balance - December 31, 1994(1) 7,900 79 -- -- 1,633 (30,316) (178)
Net loss -- -- -- -- -- (8,578) --
Cumulative translation adjustment -- -- -- -- -- -- 97
Accretion on redeemable convertible
preferred stock -- -- -- -- -- (1,836) --
Conversion of securities upon initial
public offering (7,900) (79) 17,829 178 18,569 23,206 --
Sale of common stock, net of related
expenses -- -- 2,795 28 43,450 -- --
Exercise of stock options -- -- 120 1 144 -- --
------ ---- ------ ---- -------- -------- -----
Balance - December 31, 1995(1) $ -- $ -- 20,744 $207 $ 63,796 $(17,524) $ (81)
====== ==== ====== ==== ======== ======== =====
</TABLE>
(1) The consolidated financial data for 1992 through 1995 has been
restated. See Note 2 of these Consolidated Financial Statements.
The accompanying notes are an integral part of these
consolidated financial statements.
37
<PAGE> 38
COMPUTRON SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------
1993 1994 1995
(Restated) (Restated) (Restated)
------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(3,864) $ (2,408) $ (8,578)
------- -------- --------
Adjustments to reconcile net loss to net
cash flows provided by (used in) operating activities -
Depreciation and amortization 1,715 1,867 2,085
Provision for doubtful accounts 1,998 1,573 2,763
Changes in current assets and liabilities -
Restricted cash -- -- (751)
Accounts receivable (5,312) (7,771) (4,623)
Income tax refunds receivable -- -- (1,369)
Prepaid expenses and other current assets 192 (298) (103)
Other liabilities 1,136 1,231 4,534
Deferred revenue 1,582 8,860 1,291
------- -------- --------
Commitments and contingencies (Notes 5 and 6) (2,553) 3,054 (4,751)
------- -------- --------
Cash flows from investing activities:
Other assets 32 (226) (220)
Capitalized software development costs (1,014) (911) (1,495)
Purchase of equipment and leasehold improvements (1,001) (1,062) (2,948)
Short-term investments 146 (864) 335
------- -------- --------
Net cash flows used in investing (1,837) (3,063) (4,328)
------- -------- --------
Cash flows from financing activities:
Net proceeds from issuance of redeemable convertible
preferred stock -- 10,004 --
Net proceeds from the sale of common stock -- -- 43,478
Proceeds from exercise of stock options -- -- 145
Proceeds from long-term debt 2,668 2,529 --
Payments of long-term debt (809) (1,396) (5,652)
Increase in other long-term liabilities -- -- 1,000
Principal payments under capital lease obligations (20) (200) (56)
------- -------- --------
Net cash flows provided by financing activities 1,839 10,937 38,915
------- -------- --------
Foreign currency exchange rate effects 16 (44) 97
------- -------- --------
Net increase (decrease) in cash and cash equivalents (2,535) 10,884 29,933
Cash and cash equivalents, beginning of year 6,837 4,302 15,186
------- -------- --------
Cash and cash equivalents, end of year $ 4,302 $ 15,186 $ 45,119
======= ======== ========
Supplemental disclosures of cash flow information and noncash financing
activities:
Cash paid during the year for -
Interest $ 331 $ 501 $ 507
Income taxes 14 31 1,864
Capital lease obligations incurred -- 380 33
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements
38
<PAGE> 39
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES
The Company was incorporated as Computron Systems Company, Inc. under the laws
of the State of Delaware in September 1978. The name of the Company was changed
to Computron Technologies Corporation in February 1979 and subsequently changed
to Computron Software, Inc. in May 1995. The Company designs, develops, markets
and supports client/server financial, workflow and archival data management
software solutions.
(a) Principles of Consolidation
The consolidated financial statements include the accounts of Computron
Software, Inc.; its wholly owned subsidiaries located in Australia, Hong Kong,
Singapore and the United Kingdom; and, a Polish joint venture in which the
Company has a majority interest (collectively, the "Company"). All significant
intercompany transactions and balances have been eliminated.
(b) Revenue Recognition
The Company recognizes revenue from noncancelable software licenses upon product
shipment, provided collection is probable and no significant vendor and
post-contract customer obligations remain at the time of shipment. The Company
accounts for insignificant vendor obligations by deferring a portion of the
revenue and recognizing it when the related services are performed. Post
contract support (maintenance) service fees are typically billed separately and
are recognized on a straight-line basis over the life of the applicable
agreement. The Company recognizes service revenues from consulting and
implementation services, including training, provided by both its own personnel
and by third parties, upon performance of the services.
(c) Reporting, Operating and Control Environment; Management Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the periods presented.
Actual results could differ from those estimates. Significant assets and
liabilities with reported amounts based on estimates include accounts
receivable, capitalized software development costs and deferred revenues.
Following the December 31, 1994 audit, the Company received a management letter
from its independent public accountants that identified material weaknesses in
the Company's internal control environment. See "Business--Risk
Factors--Management of Growth". During 1995, the Company experienced significant
turnover of its senior financial and accounting personnel which management
believes delayed the implementation of certain improvements and resulted in
material weaknesses in these same areas. The December 31, 1995 audit resulted in
material adjustments to the fourth quarter's revenues and expenses.
39
<PAGE> 40
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT SHARE DATA)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
(c) Reporting, Operating and Control Environment; Management Estimates -
(Continued)
In connection with the completion of the December 31, 1995 audit, the
independent public accountants have informed the Company that their management
letter will again communicate material weaknesses similar to those material
weaknesses included in the 1994 management letter. In addition, the independent
public accountants recommended that the Company implement an internal accounting
control plan, approved by the Audit Committee of the Board of Directors, which
addresses these weaknesses and reorganize and upgrade the contracts
administration processes, procedures, controls and personnel to ensure proper
revenue recognition and financial reporting.
(d) Cash and Cash Equivalents
Cash equivalents are stated at cost, which approximates market, and consists of
short-term, highly liquid investments with maturities of less than three months.
(e) Short-term Investments
Effective January 1, 1994, the Company adopted Statement of Financial Accounting
Standards (SFAS), No. 115, Accounting for Certain Investments in Debt and Equity
Securities. At December 31, 1994 and 1995, short-term investments consist of
U.S. Treasury bills, letters of credits and short-term bonds with maturities of
greater than three months, but less than one year. Pursuant of SFAS No. 115,
short-term investments are classified as held-to-maturity and are carried at
amortized cost which approximates market value.
(f) Equipment and Leasehold Improvements
Equipment and leasehold improvements are stated at cost, less accumulated
depreciation and amortization. Depreciation expense is computed using the
straight-line method over the estimated useful lives of the assets (three to
five years). Leasehold improvements are amortized using the straight-line method
over the lesser of the remaining term of the lease or their estimated useful
lives.
(g) Software Development Costs
In accordance with SFAS No. 86, Accounting for the Costs of Computer Software to
Be Sold, Leased or Otherwise Marketed, the Company capitalizes software
development costs upon the establishment of technological feasibility until the
time when the product is available for general release to customers.
During 1993, 1994, and 1995, capitalized software development costs amounted to
$1,014, $911 and $1,495, respectively. Software development costs are amortized
over the greater of the amount computed using (a) the ratio of actual revenue
from a product to the total of current and anticipated related revenues from the
product or (b) over the economic life of the product, estimated to be three
years, on a straight-line basis.
40
<PAGE> 41
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
(h) Income Taxes
The Company provides for income taxes using applicable statutory rates based on
reported income in the tax reporting entity. Deferred income taxes are provided
for differences between the book value and tax basis of assets and liabilities.
Such differences primarily relate to the allowance for doubtful accounts,
software development costs and deferred revenue. The Company has not provided
federal income taxes on undistributed foreign earnings as it is their intention
to reinvest any such earnings in those operations. Effective January 1, 1993,
the Company adopted SFAS No. 109, Accounting for Income Taxes. The effect of
such adoption in 1993 was not significant to the Company's consolidated
financial position or results of operations. See Note 7 of Notes to Consolidated
Financial Statements.
(i) Post-Retirement Benefits
The Company has no obligation for post-retirement benefits.
(j) Concentration of Credit Risk
SFAS No. 105, Disclosure of Information about Financial Instruments with
Off-Balance Sheet Risk and Financial Instruments with Concentration of Credit
Risk, requires disclosure of any significant off-balance sheet and credit risk
concentrations. The Company has no significant off-balance sheet concentration
of credit risk such as foreign exchange contracts, option contracts or other
foreign hedging arrangements. The Company maintains the majority of cash
balances with three financial institutions and its accounts receivable credit
risk is not concentrated within any geographic area. There were no accounts
receivable from a single customer which exceeded 10 percent of total accounts
receivable as of December 31, 1995.
During 1993, one customer accounted for approximately 11.8%, of the Company's
total revenues. In 1994, another customer accounted for approximately 24.8% of
total revenues. During 1995, Polish State Railways Central Office of Purchasing
and Sales Ferpol, a division of Polish State Railways, accounted for
approximately 10.0% of total revenues.
(k) Foreign Currency Translation
Accounts of the Company's foreign subsidiaries are maintained in the functional
currency in which the applicable entity operates. For amounts held in such
accounts which are denominated in currencies other than the United States
dollar, such amounts are translated at the following rates of exchange: assets
and liabilities at year-end exchange rates; equity accounts at historical
exchange rates and income and expense accounts at the average exchange rate for
the applicable period.
41
<PAGE> 42
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
(1) OPERATIONS AND SIGNIFICANT ACCOUNTING POLICIES - (CONTINUED)
(l) Pro forma net loss per common share
For the year ended December 31, 1995, pro forma net loss per common share was
based on the weighted average number of common shares outstanding during the
year. The pro forma weighted average number of common shares assumes that all
series of Redeemable Convertible Preferred Stock and Class A and Class B Common
Stock had been converted to Common Stock as of the original issuance dates.
Historical net income (loss) per share data have not been presented for periods
prior to the Company's initial public offering, as such information is not
considered to be relevant or meaningful.
(m) New accounting pronouncement
The Financial Accounting Standards Board (FASB) has issued SFAS No. 123,
"Accounting for Stock-Based Compensation," which establishes an alternative to
current accounting for compensation associated with stock issued to employees.
Management does not intend to adopt the methods for measuring compensation
related to stock options allowed by SFAS No. 123. Accordingly, this accounting
pronouncement will not impact the Company's financial statements.
(2) RESTATED FINANCIAL RESULTS
On January 27, 1997, the Company announced that certain new information had come
to the attention of its Board of Directors and its independent public
accountants that may impact previously reported financial results. As a result,
the Company restated its consolidated financial statements for each of the four
years in the period ended December 31, 1995, and certain unaudited quarters
therein and for each of the three unaudited quarters ended September 30, 1996.
In the opinion of management, all material adjustments necessary to correct the
financial statements have been recorded.
The restatements reflect revenue reversals and deferrals of sales previously
recognized in the periods from the fourth quarter of 1992 through the third
quarter of 1996. These revenue adjustments resulted in reductions of
previously reported bad debt provisions and increases in deferred revenue.
Also included in the restated consolidated financial statements are certain
operating expenses not previously recorded by the Company and the recording of
certain expenses in different accounting periods.
A summary of the impact of such restatements on the financial statements for the
years ended December 31, 1992, 1993, 1994 and 1995 is as follows:
<TABLE>
<CAPTION>
Years ended December 31, 1992 1993
- ------------------------ ---- ----
Previously As Previously As
Reported Restated Reported Restated
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total Revenue $ 20,513 $ 19,635 $ 24,282 $ 23,588
Loss from operations (2,750) (3,618) (2,644) (3,338)
Net Loss (2,479) (3,347) (3,170) (3,864)
Total Assets 16,453 15,585 17,302 16,119
Deferred Revenue 1,934 1,934 3,137 3,516
</TABLE>
42
<PAGE> 43
<TABLE>
<CAPTION>
Years ended December 31, 1994 1995
- ------------------------ ---- ----
Previously As Previously As
Reported Restated Reported Restated
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Total Revenue $34,958 $32,473 $55,519 $52,795
Income (Loss) from operations 433 (2,052) (7,704) (8,970)
Net Income (Loss) 77 (2,408) (7,312) (8,578)
Net Income (Loss) per share .00 (.13) (.39) (.46)
Total Assets 36,681 35,075 73,045 71,367
Deferred Revenue 9,935 12,376 10,474 13,667
</TABLE>
(3) LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------
1994 1995
<S> <C> <C>
Revolving line of credit secured by accounts receivable, bearing
interest at the bank's prime rate and expiring on
May 31, 1996 ................................................................. $ 4,000 $ --
Term loan, secured by accounts receivable, bearing interest at
the bank's prime rate plus 1.25%, and repaid in November, 1995 ............... 1,056 --
Various installment loans secured by computer equipment,
payable in aggregate monthly installments of $70 including
interest at rates ranging from 7.3% to 9.5%. Maturity
dates range from July, 1996 through July, 1997 ............................... 941 428
Other .......................................................................... 83
------- -----
Total .......................................................................... 6,080 428
Less-current portion ........................................................... (5,249) (351)
------- -----
Long-term debt ................................................................. $ 831 $ 77
======= =====
</TABLE>
43
<PAGE> 44
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
(3) LONG-TERM DEBT - (CONTINUED)
Maturities of long-term debt as of December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Years Ending December 31,
-------------------------
<S> <C>
1996 ........................ $351
1997 ........................ 77
----
$428
====
</TABLE>
Pursuant to the revolving line of credit, the Company is required to maintain a
compensating balance of $200 and to maintain, among other things, working
capital of at least $10,000, a maximum debt-to-worth ratio, as defined, of
1-to-1 and tangible net worth, as defined, of at least $13,000.
The Company has a $1,000 secured equipment line of credit expiring on May 31,
1996. At December 31, 1995, the entire line was available. The Company's primary
lender has authorized $2,000 to be available for letters of credit that mature
on May 31, 1996. At December 31, 1995 there were $751 of outstanding letters of
credit under this facility. The letters of credit are secured by U.S. Treasury
securities and certificates of deposit.
(4) LEASE OBLIGATIONS
The Company has property under capital leases, which is included in equipment
and leasehold improvements. Additionally, the Company leases office space and
equipment under non-cancelable operating leases. Rent expense charged to
operations in the accompanying consolidated statements of operations for leased
office space, vehicles and equipment was $1,212, $1,289 and $1,708 for the years
ended December 31, 1993, 1994 and 1995, respectively.
Scheduled future minimum rental payments required for all non-cancelable leases
are as follows:
<TABLE>
<CAPTION>
Capital Operating
Years Ending December 31, Leases Leases
- ------------------------- ------- ---------
<S> <C> <C>
1996 .................................. $247 $1,569
1997 .................................. 154 1,352
1998 .................................. 56 1,263
1999 .................................. 17 590
2000 .................................. 4 358
---- ------
Total minimum lease payments .......... 478 $5,132
======
Less-Amount representing interest . 86
----
Present value of minimum lease payments 392
Less-Current portion .............. 202
----
Noncurrent portion .................... $190
====
</TABLE>
44
<PAGE> 45
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
(5) CONTINGENCIES
During 1996, the Company and certain of its current and former officers and
directors were named as defendants in six civil suits filed as class actions on
behalf of individuals claiming to have purchased Computron Common Stock during
the time period from August 24, 1995, through April 1, 1996. The suits were
filed in the United States District Court for the District of New Jersey and
have been consolidated by court order into one suit captioned In re Computron
Software, Inc. Securities Litigation, Master File No-96-1911 (AJL). A Second
Amended Consolidated Complaint was filed on August 9, 1996. The complaint
asserts claims under Sections 11 and 15 of the Securities Act of 1933, Sections
10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, Rule 10b-5
of the Securities and Exchange Commission promulgated thereunder, and state law,
and seeks unspecified compensatory damages, attorneys' fees and costs. By a
Notice of Motion, dated September 9, 1996, defendants moved to dismiss the
Second Amended Consolidated Complaint for failure to state a claim upon which
relief can be granted, pursuant to Rule 12(b)(6) of the Federal Rules of Civil
Procedure and for failure to plead their claims with particularity, as required
by Rule 9(b) of the federal Rules of Civil Procedure and the Private Securities
Litigation Reform Act of 1995. During the pendency of the Company's motion to
dismiss, the Company announced that information had come to the attention of the
Board of Directors that may impact previously issued financial statements and
the Company's independent public accountants withdrew their reports on the
Company's previously reported financial statements. By order of the Court, the
Company's motion to dismiss was withdrawn and all discovery and other
proceedings in the action were stayed. The Court has scheduled a conference on
April 21, 1997 to discuss case management. The Company intends to vigorously
defend itself against the suits.
Since discovery has not yet commenced, the Company is unable to assess the
likelihood of an adverse result in the class action lawsuits. There can be no
assurances as to the outcome of such lawsuits. The inability of the Company to
resolve the claims that are the basis for the lawsuits or to prevail in any
related litigation could result in the Company being required to pay substantial
monetary damages for which the Company may not be adequately insured, which
could have a material adverse effect on the Company's business, financial
condition and results of operations. In any event, the Company's defense of such
lawsuits, even if the outcome is favorable to the Company, has resulted and will
continue to result in substantial costs to the Company.
Historically, the Company has been involved in other disputes and/or litigation
encountered in its normal course of business. The Company believes that the
ultimate outcome of these proceedings will not have a material adverse effect on
the Company's business, financial condition and results of operations or cash
flows.
(6) RELATED PARTY TRANSACTIONS
The Company has entered into employment agreements with certain executive
officers. The agreements expire in December 1996 and provide for aggregate
annual minimum payments of $726, plus Board-approved increases, with a minimum
increase based on the annual consumer price index. The Company is the
beneficiary of an aggregate of $5,950 in life insurance on the lives of these
executives.
45
<PAGE> 46
Advances to officers of the Company aggregated $298 at December 31, 1994. There
were no advances to officers as of December 31, 1995.
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
(7) INCOME TAXES
The Company provides for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes. Under the liability method specified by SFAS No.
109, a deferred tax asset or liability is measured based on the difference
between the financial statement and tax bases of assets and liabilities, as
measured by the enacted tax rates.
The components of loss before provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------
1993 1994 1995
<S> <C> <C> <C>
Domestic ......................... $(2,745) $(2,722) $(2,945)
Foreign .......................... (796) 464 (5,283)
------- ------- -------
Total ................... $(3,541) $(2,258) $(8,228)
======= ======= =======
</TABLE>
The provision for income taxes is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------------
1993 1994 1995
<S> <C> <C> <C>
Federal ...... .................... $168 $ 50 $150
State ........ .................... 5 10 100
Foreign ...... .................... 150 90 100
---- ---- ----
Total .................... $323 $150 $350
==== ==== ====
</TABLE>
46
<PAGE> 47
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
(7) INCOME TAXES - (CONTINUED)
A reconciliation of federal income taxes at the statutory rate of 34% to income
taxes reflected in the accompanying consolidated statements of operations is as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1993 1994 1995
<S> <C> <C> <C>
Federal income taxes (benefit) at 34% ............ $(1,204) $(768) $(2,798)
------- ----- -------
State income taxes, net of federal tax benefit.... 100 41 100
-------
Net operating loss and credits not benefited ..... 1,204 768 2,948
------- ----- -------
Foreign income taxes ............................. 223 109 100
======= ===== =======
$ 323 $ 150 $ 350
======= ===== =======
</TABLE>
The principal components of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------
1994 1995
<S> <C> <C>
Deferred revenue ............................... $ 394 $ 394
Non-deductible accruals and other .............. 769 1,008
Software development costs ..................... 615 (976)
Depreciation ................................... 213 249
Allowance for doubtful accounts ................ (789) 1,102
Purchased research and development ............. -- 1,432
Research and development credit carryforwards .. 103 2,683
Net operating loss carryforwards ............... 2,508 662
Valuation allowance ............................ (3,813) (6,554)
======= =======
Net deferred tax asset ....................... $ -- $ --
======= =======
</TABLE>
SFAS No. 109 requires that deferred tax assets be reduced by a valuation
allowance if, based on the weight of available evidence, it is more likely than
not that some portion or all of such assets will not be realized. The Company
has recorded a valuation allowance for its net deferred tax assets and will
continue to monitor the realizability of such assets.
Foreign subsidiaries have paid, and are expected to continue to pay, appropriate
taxes to their respective taxing authorities. It is the intention of the Company
to reinvest the earnings of its non-U.S. subsidiaries in those operations.
Accordingly, no federal taxes have been provided on undistributed foreign
earnings.
47
<PAGE> 48
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
(8) STOCKHOLDERS' EQUITY (DEFICIT)
(a) Initial Public Offering
In August 1995, the Company completed an initial public offering of common
stock, raising net proceeds of approximately $43,478. Upon closing of the
offering, the outstanding shares of Series A and Series B Preferred Stock and
Class A and Class B Common Stock were converted into an aggregate of 17,828,676
shares of common stock. The Company is authorized to issue up to 50,000,000
shares of common stock and 5,000,000 shares of undesignated Preferred Stock.
(b) Stock Option Plan
In June 1995, the Company adopted the 1995 Stock Option Plan (the 1995 Plan).
Pursuant to the 1995 Plan, the Company may grant statutory and nonstatutory
options to purchase an aggregate of up to 2,250,000 shares of Common Stock.
Options under the 1995 Plan may be granted under both discretionary and
automatic option grant programs. Options granted under the discretionary grant
program will have an exercise price of not less than 85% of the fair market
value of the Common Stock on the grant date. Options granted under the automatic
grant program will have an exercise price of 100% of the fair market value on
the grant date. All options granted under the 1992 and 1995 Plan must be
exercised within ten years of the date of grant.
A summary of stock option activity under the plan, after retroactively
reflecting the conversion of Class B Common Stock into shares of common stock as
discussed in Note 8 (a), is as follows:
<TABLE>
<CAPTION>
NUMBER
OF EXERCISE PRICE
SHARES PER SHARE
---------- --------------
<S> <C> <C>
Granted during 1993 ....................... 320,475 $ 1.17
---------- --------------
BALANCE, DECEMBER 31, 1993 ................ 320,475 1.17
Granted ................................... 888,076 1.17 - 3.33
Canceled .................................. (117,638) 1.17 - 1.90
---------- --------------
BALANCE, DECEMBER 31, 1994 ................ 1,090,913 1.17 - 3.33
Granted ................................... 136,725 13.00
Exercised ................................. (121,261) 1.17 - 1.90
Canceled .................................. (175,758) 1.17 - 13.00
---------- --------------
BALANCE, DECEMBER 31, 1995 ................ 930,619 $ 1.17 - 13.00
========== ==============
EXERCISEABLE, DECEMBER 31, 1995............ 310,323 $ 1.17 - 13.00
========== ==============
</TABLE>
All options vest in four annual installments.
(9) PROFIT SHARING PLAN
The Company's Profit Sharing Plan (the Plan) is a defined contribution plan. All
employees with three months of service and who are at least 21 years of age are
eligible to become participants in the Plan and
48
<PAGE> 49
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
(9) PROFIT SHARING PLAN (CONTINUED)
may make voluntary contributions based on a percentage of their compensation
within certain Plan limitations.
The Plan falls under the provisions of Section 401(k) of the Internal Revenue
Code. Employees may elect to contribute a percentage of their pretax salary,
subject to statutory limitations, as well as certain percentages of their
after-tax salary, to the Plan. The Company is obligated to contribute 25% of the
employees' first 6% of pretax salary contribution. The Company's contributions
charged to operations in the accompanying consolidated statements of operations
were approximately $65, $74 and $160 for the years ended December 31, 1993, 1994
and 1995, respectively.
In addition, the Company may make additional contributions at the discretion of
the Board of Directors and such contributions would be allocated among all
participants in proportion to each participant's compensation, as defined. As of
December 31, 1995, no additional contributions were made under the Plan.
(10) PURCHASED RESEARCH AND DEVELOPMENT
In December 1995, the Company obtained all rights, title, license and interests
in certain software source coding and documentation in exchange for $3,375 and
direct costs of $200. The purchase price is payable as follows: $1,225 due and
paid upon signing, $400 due January 1996 , and $250 due in seven quarterly
installments starting April 1996. In addition, the Company is obligated to pay
royalties of up to $3,000 based on future sales of products using acquired
technology. The purchase price was allocated based on the fair value of the
assets acquired as follows:
<TABLE>
<CAPTION>
<S> <C>
Other assets .......................... $ 375
Purchased research and development .... 3,200
======
$3,575
======
</TABLE>
Included in other assets are amounts related to trademarks, customer lists and
acquired technology which will be amortized over their estimated useful lives of
1 to 3 years. The amount allocated to purchased research and development
represents the fair value of projects that had not yet reached technological
feasibility and did not have a future alternative use as determined by an
independent appraisal. This amount was charged to expense as of the acquisition
date.
In addition, the Company has acquired the rights to certain software which the
Company intends to develop further for commercial sale. Purchased research and
development includes $597, which represents the estimated fair value of projects
that have not yet reached technological feasibility and have no future
alternative use.
49
<PAGE> 50
COMPUTRON SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
(IN THOUSANDS, EXCEPT SHARE DATA)
(11) FINANCIAL INFORMATION BY GEOGRAPHIC AREA
The Company does not believe there are any legal or other restrictions upon the
repatriation of international earnings to the parent company.
Domestic and export sales by destination as a percentage of total revenues are
as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------------
1993 1994 1995
<S> <C> <C> <C>
United States.................. 81.4% 72.0% 73.1%
----- ----- -----
Europe ........................ 11.1 15.6 14.5
----- ----- -----
Other ......................... 7.5 12.4 12.4
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
Revenues, income (loss) from operations and identifiable assets for the
Company's United States, European and other international operations are as
follows:
<TABLE>
<CAPTION>
United States Europe Other Eliminations Consolidated
------------- ------ ----- ------------ ------------
YEAR ENDED DECEMBER 31, 1993
- ----------------------------
<S> <C> <C> <C> <C> <C>
Revenues ......................... $ 19,806 $ 2,466 $ 1,366 $ (50) $ 23,588
Income (loss) from operations..... (2,439) 258 (1,147) (10) (3,338)
Identifiable assets .............. 13,980 737 1,667 (265) 16,119
YEAR ENDED DECEMBER 31, 1994
- ----------------------------
Revenues ......................... $ 25,841 $ 3,629 $ 3,003 $ -- $ 32,473
Income (loss) from operations..... (2,669) 601 16 -- (2,052)
Identifiable assets .............. 32,364 1,476 1,251 (16) 35,075
YEAR ENDED DECEMBER 31, 1995
- ----------------------------
Revenues ......................... $ 46,212 $ 2,742 $ 3,841 $ -- $ 52,795
Income (loss) from operations..... (5,037) (2,878) (1,055) -- (8,970)
Identifiable assets .............. 71,497 2,070 2,333 (4,533) 71,367
</TABLE>
50
<PAGE> 51
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE
To Computron Software, Inc.:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements of Computron Software, Inc. included in this
Form 10-K/A and have issued our report thereon dated April 16, 1997. Our audit
was made for the purpose of forming an opinion on the basic consolidated
financial statements taken as a whole. The schedule listed in Item 14(b) of this
Form 10-K/A is the responsibility of the Company's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic consolidated financial statements. This schedule
has been subjected to the auditing procedures applied in the audit of the basic
consolidated financial statements and, in our opinion, described in Note 2,
after the restatement, fairly states in all material respects, the supplemental
financial data required to be set forth therein, in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
April 16, 1997
51
<PAGE> 52
SCHEDULE II
COMPUTRON SOFTWARE, INC.
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
<TABLE>
<CAPTION>
Balance at Charged to Amounts Balance at
Beginning of Cost and Written End of Year
Year Expenses Off
------------- ---------- -------- -----------
<S> <C> <C> <C> <C>
Year ended December 31, 1993
Allowances for returns and
doubtful accounts .................. $ 477 1,998 (925) $1,550
Year ended December 31, 1994
Allowance for returns and
doubtful accounts ................... $1,550 1,573 (921) $2,202
Year ended December 31, 1995 (Restated)
Allowance for returns and
doubtful accounts ................... $2,202 2,763 (2,937) $2,028
</TABLE>
52
<PAGE> 53
EXHIBIT INDEX
-------------
Exhibit Index Description
------------- ------------
11.1 Statement re: Computation of Per Share Earnings.
21.1 List of subsidiaries.
23.1 Consent of Independent Public Accountants
27.1 Financial Data Schedule.
<PAGE> 1
EXHIBIT 11.1
COMPUTRON SOFTWARE, INC.
Shares Used in Calculation of Pro forma net loss per common share
(in thousands)
<TABLE>
<CAPTION>
Year ended
December 31, 1995
-----------------
<S> <C>
Weighted average Class A Common Stock outstanding during the period,
assuming conversion to Common Stock ................................. 441
Weighted average Class B Common Stock outstanding during the period,
assuming conversion to Common Stock ................................. 11,850
Weighted average Series A Convertible Preferred Stock outstanding during
the period, assuming conversion to Common Stock ..................... 3,260
Weighted average Series B Convertible Preferred Stock outstanding during
the period, assuming conversion to Common Stock ..................... 2,277
Weighted average shares of Common Stock outstanding during the year .... 981
========
18,809
========
</TABLE>
53
<PAGE> 1
EXHIBIT 21.1
COMPUTRON SOFTWARE, INC.
List of Subsidiaries
Computron Technologies Europe Limited (incorporated in England and Wales)
Computron Technologies Pacific Limited (incorporated in Hong Kong)
Computron Technologies Pty. Limited (incorporated in Australia)
Computron Technologies Singapore Private Limited (incorporated in Singapore)
Computron Software (Canada) Inc. (incorporated in Canada)
Computron-Rewicks Sp.z o.o. (80% owned, incorporated in Poland)
54
<PAGE> 1
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of
our reports dated April 16, 1997 included in this Form 10-K/A into the
Company's previously filed Registration Statement File No. 333-11681. It
should be noted that we have not audited any financial statements of the
Company subsequent to December 31, 1996 or performed any audit procedures
subsequent to the date of our report.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
April 16, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 45,870
<SECURITIES> 781
<RECEIVABLES> 17,469
<ALLOWANCES> 2,028
<INVENTORY> 0
<CURRENT-ASSETS> 64,152
<PP&E> 9,434
<DEPRECIATION> 5,787
<TOTAL-ASSETS> 71,367
<CURRENT-LIABILITIES> 23,702
<BONDS> 0
0
0
<COMMON> 64,003
<OTHER-SE> (17,605)
<TOTAL-LIABILITY-AND-EQUITY> 71,367
<SALES> 33,766
<TOTAL-REVENUES> 52,795
<CGS> 4,673
<TOTAL-COSTS> 37,048
<OTHER-EXPENSES> 24,717
<LOSS-PROVISION> 2,763
<INTEREST-EXPENSE> 496
<INCOME-PRETAX> (8,228)
<INCOME-TAX> 350
<INCOME-CONTINUING> (8,578)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,578)
<EPS-PRIMARY> (0.46)
<EPS-DILUTED> (0.46)
</TABLE>
